Schneider S.A.

4, rue de Longchamp
75116 Paris
France
(1) 4505–7800

Public Company
Incorporated: 1966
Employees: 75,000
Sales: Ffr40.49 billion (US$6.68 billion)
Stock Index: Paris

The consolidation of industries in France has taken two general forms: those by government decree, and those by management initiative. In the 1950s and 1960s, basic industries like oil, steel, and aircraft production were concentrated at government behest to preserve them as strategic assets. Indeed, many of these industries were owned by the state. The French electronics industry has recently undergone similar rationalization programs, but in the 1980s such programs have increasingly been effected by private managements.

Schneider, one of France’s oldest firms, is also one of the most important members of this industry. As a public company relatively free of government intervention, Schneider is profit oriented and internationally competitive.

Schneider was originally founded in 1782 to manufacture industrial machinery at Le Creusot. The company was taken over by two Schneider brothers in 1836, at the dawn of the industrial age in France. By 1838 Schneider had built the first French steam locomotive and it later expanded into building other large, complex mechanical devices. By the late 1800s it had become involved in a wide variety of heavy industries, including steel manufacture.

Schneider gained recognition as a major French company during World War I. It survived nationalization efforts during France’s three-year popular-front government of 1936-1939 and was called upon to help mobilize French forces in the months before World War II. Overrun during the war by German troops, Schneider’s factories were either closed or redirected to support the German war effort.

By the time the war ended in 1945, many of Schneider’s factories had been bombed or were obsolete. Charles Schneider undertook a recovery effort in which the company was reorganized into a holding company. In 1949 Schneider’s industrial interests were transferred to three operating subsidiaries in civil and electrical engineering, manufacturing, and construction.

With the benefit of government direction and regulation, Schneider entered the 1960s fully recovered from war damage and well established in its various operations. In 1963, however, another family industrial group called Empain acquired a large financial stake in Schneider. Empain, founded in 1881 by Edouard Empain, was a pioneer in rail transit. The company installed the Paris Metro system in 1900 and later formed a successful rail-construction firm called Electrorail.

While the Empain and Schneider operating companies remained largely separate, the holding company conducted a series of further acquisitions that greatly expanded the subsidiaries’ involvement in basic industries. The two operating companies grew increasingly close between 1966 and 1969, when they were merged into single group called Empain-Schneider.

The new company’s assets remained divided between Schneider S.A. (incorporated in France) and Electrorail (incorporated in Belgium), but they shared the same management structure and president, Baron Edouard Empain. By 1971 Empain-Schneider had become one of the most important industrial groups in the world, with interests in virtually every sector of heavy industry and infrastructure.

In 1972 Empain-Schneider took over the civil- and electrical-engineering group Spie-Batignolles. With interests in nuclear power, construction, and oil platforms, Spie-Batignolles was formed in 1968 by the merger of the Societe de Construction des Batignolles (founded in 1846) and the Societe Parisienne pour ITndustrie Electrique (founded in 1900).

Three years later Empain-Schneider acquired control of another vital French company, the industrial electrical products supplier Merlin Gerin. Founded in Grenoble in 1920 by Paul-Louis Merlin and Gastón Gerin, the company was a leader in industrial circuit breakers and switching gear.

A third major industrial group controlled by Empain-Schneider was Creusot-Loire, a heavy-equipment and special-steels manufacturer. It was also a leading builder of nuclear power stations through its subsidiaries Framatome and Novatome, and was heavily involved in turnkey projects abroad. By the late 1970s Empain-Schneider had developed a fourth major subsidiary, an energy and communications products group called Jeumont-Schneider. This company consisted of existing Schneider enterprises and several others controlled by the Jeumont-Industrie industrial group.

In 1980, however, the Empain family divested itself of its interest in Empain-Schneider, forcing the reorganization of the company and reducing Empain’s involvement in the group from 45% to about 5% of turnover. A more serious restructuring took place the following year when a Socialist government under President Francois Mitterand came to power.

The government sought to nationalize major companies in an effort to better coordinate industry with its national objectives. Under the new program the first sector to be nationalized was banking; the state took control of all banks with more than $220 million in assets. This included Schneider’s banking subsidiary, the Banque de TUnion Européenne.

Between 1981 and 1986 Schneider undertook a restructuring program whose objective was to transform the company from a complex family financial trust with many diverse interests into a leading international industrial group. As part of this effort, Schneider divested its machine-tool, heavy-equipment, shipbuilding, and steel operations, and later sold its lower-margin rail transport, nuclear-power, and private-telecommunications businesses.

The sectors that remained under the new simplified structure included construction of electric-power plants and power-distribution systems, building and civil-engineering projects, industrial infrastructure, and a wide variety of industrial electronics systems. Schneider’s primary operating subsidiaries remained Spie-Batignolles, with 55% of total revenue; Merlin Gerin, with 31%; and Jeumont-Schneider, with 14% in 1987. Reflecting Schneider’s position in international markets, 41% of the company’s revenues were generated through foreign projects.

During the difficult restructuring process, the company’s chairman, Didier Pineau-Valencienne, gained a reputation for waging controversial corporate battles. In 1984 he failed to win government support for his plan to restructure Schneider’s troubled capital-goods subsidiary, Creusot-Loire. After declaring the subsidiary bankrupt, Pineau-Valencienne was roundly accused of mismanagement and incompetence.

Undaunted, Pineau-Valencienne carried out the remxainder of his restructuring plan and sold off those parts of the company he considered unrelated to Schneider’s core operations. In the process, Schneider accumulated a large cash reserve that Pineau-Valencienne earmarked for strategic acquisitions.

The first of those was for the industrial-automation company Telemecanique, which Pineau-Valencienne had hoped to merge with Merlin-Gerin. The takeover battle, launched in February, 1988, involved many bitter and complicated legal and labor disputes, and finally government intervention. By July Schneider had won permission to acquire Telemecanique, but in the process had inspired a national debate on hostile takeovers.

Pineau-Valencienne has successfully remolded Schneider into a more efficient and responsive industrial group and given the company new credibility as an equal player with competitors such as Westinghouse, Rockwell, and Mitsubishi. But though the groundwork has been laid, Schneider’s ability to compete over the long run has not been proven.

Nonetheless, Schneider is in an excellent position to realize strong growth and progressive consolidation of its chosen markets. The company is now neither so large nor so diverse as to detract from its ability to undertake more-efficient, coordinated strategies. Schneider is sure to benefit from improved focus and mobility and, given its interest in foreign markets, remain a world leader in industrial electronics and construction and in civil projects.

Principal Subsidiaries:

Spie Batignolles (62.6%); Merlin Gerin (50.1%); Jeumont Schneider; La Chaleassiere; Paramer.