Compagnie Genérale D’électricité

Compagnie Genérale D’électricité

54, rue La Boétie
75382 Paris Cedex 08
France
(1) 563-1414

Public Company
Incorporated: 1898
Employees: 204,100
Sales: FFr127.96 billion (US$21.12 billion)
Stock Index: París

Compagnie Générale d’Électricité, or CGE, as it is more commonly known, is one of France’s largest industrial combines. With interests in energy, telecommunications, construction, and manufacturing, CGE may be considered a strategic resource, like Britain’s GEC, America’s GE, or Germany’s AEG.

Much of the attention CGE has attracted during the 1980s had to do with its telecommunications subsidiary Alcatel. As world markets have become more dependent on information, demands on telecommunications technologies have grown more acute and complex. Through Alcatel, CGE has set out to exploit the tremendous business opportunities that exist in telecommunications.

Another matter of attention—and for many, a source of confusion—has been the company’s recent experience as a state-owned corporation. After a brief and unsuccessful socialist “experiment,” CGE was returned to the private sector in 1986.

For the greater part of its history, CGE was involved almost exclusively in the fields of electric-power generation and distribution. As one of the first companies in Europe to begin commercial production of electricity, CGE developed leading positions in the engineering, design, and manufacture of generators, substations, and distribution devices.

Although capitalized initially with private funds, CGE received generous financial assistance and support from the French government. As a result, it was often obliged to follow state-directed development programs and serve French political interests—particularly as they applied to domestic industrialization and job creation.

CGE experienced strong growth during the interwar period. By 1938 CGE had expanded well beyond its traditional base in industrial eastern France and grown to more than 1.2 million customers, from 2,000 in 1990. The company remained under the managerial domination of several families until the Popular Front government of Leon Blum came to power in 1936. When that government fell in 1938, however, many of these family interests regained influence within the company.

In the years before World War II, CGE purchased construction and civil-engineering interests which further strengthened the company’s position in power resources. Because CGE was the leading French utility and a primary industrial resource, and therefore a crucial strategic resource, the company was nationalized and placed under government control. With an increasing threat from Germany, French military strategists had little time to prepare for the defense of the company’s resources.

The German invasion of Poland in 1939 prompted France to declare war on Germany, but no major battles were fought for several months. France was ill-prepared for the German invasion which followed in 1940, and eastern and northern France—where CGE was most heavily concentrated—fell quickly. The rest of France came under the control of a rival French government under Marshal Henri Petain, who signed an armistice with Germany. Like many French industrial resources, CGE was taken over by German functionaries and dedicated to the German war effort.

Soon after the United States entered the war in 1942, CGE plants became targets for Allied bombings and sabotage. Many sites, however, were spared in anticipation of the establishment of an Allied beachhead in Western Europe. When that beachhead was established in 1944, CGE facilities were taken back by Allied forces and used to support action against the Germans.

After the war ended in 1945, CGE undertook a massive development program in support of the French government’s efforts to re-establish France as a leading military and industrial power. Investigating new commercial markets, CGE expanded in small manufacturing ventures such as batteries, wire, light bulbs, and switches.

Throughout the 1950s, the company’s growth was closely tied to the stop-and-go performance of the French economy. By the early 1960s, however, CGE, with over 200 subsidiaries, had become weighed down by bureaucracy and stagnant market growth.

The company undertook a general reorganization and diversification program in 1965. Three years later, CGE was reorganized into several large market groups, including power generation, engineering, telecommunications, cable and wire, raw materials, and nuclear, naval, and electromechanical products. It was at this juncture that Alsthom, another French electromechanical engineering company, became involved with CGE. While both remained separate companies, their ownership was pooled in order to concentrate and rationalize capital and human resources. CGE was converted into a large state-owned holding company with leading interests in virtually every sector of the European electric, telecommunications, and construction industries.

Alsthom was founded at approximately the same time as CGE, but remained principally an electrical-engineering company, manufacturing power-generation equipment and building power plants. In 1976, Alsthom merged with the French shipbuilding company Les Chantiers de l’Atlantique. The new company, Alsthom-Atlantique, later acquired various other industrial units including the power-turbine generator unit of the Swiss company BBC Brown Boveri, and expanded its activities in power resources, shipbuilding, railway equipment, and switchgear.

CGE, meanwhile, endured numerous restructurings at the behest of the French government. Intended as “fine tuning” to make the company more competitive, frequent changes in management, finance, and organization left CGE an ill-focused and confused institution. As a primary force behind French industry, CGE was slow to respond to national imperatives necessitated by the energy crisis in 1973 and, later, the turbulent downfall of the OPEC oil cartel following the Iranian revolution of 1979.

In 1981 the French elected a Socialist government led by President Francois Mitterand. Mitterand pledged to nationalize many of France’s largest industrial combines, including CGE. The nationalization was carried out in 1982, but CGE, which already had endured years of government direction, was barely changed. In fact, many of its nonconsolidated subsidiaries remained under the control of private investors.

Converted into a de facto sub-ministry for energy, CGE was forced to dilute market-based business decisions with French political initiatives. Far from destroying the company, however, nationalization benefited CGE in several ways. As it profited from the opening of several export markets and pan-European trade agreements and remained a major supplier of turnkey projects in areas politically sensitive to Western interests, CGE became the third largest exporter in France, after Renault and Peugeot, earning 40% of its income from exports.

Another result of the nationalization was the government’s decision to restructure the French electronics industry by assigning certain operations to specific companies. In 1983 CGE and Thomson-Brandt exchanged various assets so that CGE could assume primary responsibility for telecommunications (while retaining the Thomson product name), and Thomson-Brandt could concentrate on consumer electronics and military equipment.

With the reorganization of the U.S. telephone system, the American company ITT announced divestiture of its foreign telecommunications interests. Originally created as a counterpart to AT&T for foreign telecommunications operations, ITT sought to bolster its performance by concentrating instead on the financial-services industry.

During 1986, CGE negotiated the purchase of 63% of ITT’s telecommunications interests—including Standard Electrik Lorenz of West Germany, Bell Telephone Manufacturing of Belgium, Standard Electrica of Spain, Standard Telefon of Norway, Standard Radio and Telefon of Sweden, and Standard Telephone and Radio of Switzerland—for $1.1 billion. CGE merged its existing telecommunications operations with those of ITT, and consolidated the operations under an existing subsidiary called Alcatel, incorporated in the Netherlands but headquartered in Brussels.

The French experiment with socialism produced few positive results for the French economy and had become a growing liability for President Mitterand. While extolling many of the accomplishments of his nationalization program, Mitterand endorsed the privatization of many companies the state had taken over. Accordingly, government control of CGE—what CGE Chairman Pierre Suard has called a “dark period”—ended in 1986.

While CGE has returned to private-sector control, it remains as important to the French economy as ever, and so must occasionally bow to the demands of the government. The company has, however, managed to invigorate its operations with newer, more efficient planning and marketing procedures. With a new and powerful standing in telecommunications, it has set out to overrun AT&T as the world’s leading telecommunications company—a goal which, with the advantages of an open European market in 1992, may be within its reach.

Principal Subsidiaries:

CGEE Alsthom; CEAc (73.2%); Saft (67%); Alcatel NV (The Netherlands) (61.5%); GEC Alsthom NV (The Netherlands) (50%); Framatome (40%).