Générale des Eaux Group
The Générale des Eaux Group is the world’s foremost supplier of drinking water, with over 22 million users in France and sizeable shares of the markets in Spain, the United Kingdom, and the United States. It also ranks as the world’s most important public services organization and has 1,200 subsidiaries operating worldwide in areas of thermal and electrical power, waste, real estate, leisure, healthcare, and communications.
Compagnie Générale des Eaux was founded in 1852 during the reign of Napoleon III and is often described as France’s first capitalist venture. The company was authorized by imperial decree on December 14, 1853, and from the start benefited enormously from the emperor’s personal interest, as well as from support and investment from the international business community in Paris, London, and Lyons, which had studied the water supply companies of the United States and the United Kingdom and realized rich pickings could be had. The list of founders included the Rothschild family, a Fould, a La-fitte, the Duc de Morny—the Emperor’s half brother—and a large proportion of the imperial nobility. Shareholders included James de Rothschild, who had the largest single subscription of 5,000 shares, and a cross-section of members of the nobility, stockbrokers, and bankers. The initial capital was FFr20 million which was raised from an 80,000 share subscription.
The political and financial influence of its founders and shareholders gave the new company a high profile from the start, but the company also caught the mood of the day with its declared objective of providing “assistance for municipal authorities in implementing schemes of fundamental importance to public health.” Not only was the notion of water-for-all part of a new municipal socialism which had already taken root in the United Kingdom and Germany, but also France’s growing industries were becoming insatiable in their need for water and power. Without an industrial base, France could not compete with its neighbors, the United Kingdom and Germany. If the foundation of Compagnie Générale des Eaux was a calculated political move, it was also an astute financial one. “We shall be opening up a mine, the wealth of which has not been explored,” reported the first board of management to the shareholders, continuing, “as the first occupants of this mine, it will be our privilege to select and exploit the best seams.” The shareholders were not disappointed.
Projected returns of 4% were realized at 25% from the first year of business. Lyons and Nantes headed the list of municipal authorities anxious to receive Générale des Eaux water. Within months, a 99-year agreement had been concluded with Lyons to provide water for domestic and industrial consumption. For an initial investment of FFr6 million and operating costs of FFr80,000 per year, Générale des Eaux guaranteed a gross annual income of FFr381,500 before a drop of water had even flowed through the pipes. A contract with Nantes followed in 1854, with Générale des Eaux undercutting the haphazard services of current suppliers, but still managing to make a healthy 20% profit.
Securing the contract for the Paris water supply took a little longer. Initially turned down for the bid to supply the capital’s water, Générale des Eaux began buying into small local water companies in the suburbs. When in 1860 the suburbs were annexed to the city, the company was in a strong position to negotiate with the prefecture of the Seine and the city of Paris authorities. Slow penetration into and around the desired market was a clever strategy, and became something of a hallmark of Générale des Eaux’s acquisition policies thereafter. The seven-year wait was worth it. Générale des Eaux won a 50-year contract to supply Paris and the suburbs. The city of Paris, for its part, took possession of all water machinery and installations which had previously belonged to the company. Générale des Eaux guaranteed a supply of water which they charged back to the authorities. As the population of Paris grew and the demand for both domestic and industrial water increased, the water supplier saw its profits grow.
The character of Générale des Eaux was beginning to emerge. The company preferred to deal with large municipal authorities which would contract agreements for long periods of time and sought out projects which would bring high profits to enable greater investment. It also displayed a strong speculative and entrepreneurial streak, the latter of which is particularly remarkable. Générale des Eaux anticipated the growth of the Côte d’Azur and the so-called Emerald Coast of Brittany some 20 to 30 years before the resorts became fashionable, installing water supplies and drainage systems in Nice and the surrounding areas from the 1860s and subsequently supplying Antibes, Menton, Hyères, and Monaco in the 1870s and 1880s. Towards the end of the century, the coastal towns and large cities of Brittany and Normandy were supplied by Générale des Eaux.
Despite heady successes in the company’s first 50 years, the end of the century brought an unforeseen problem. In 1892 there was a major typhoid epidemic in Paris. The authorities acted by ordering a systematic sampling of water for laboratory analysis, and in 1902 the Public Hygiene Act laid down standards for public health in relation to the water supply. The connection between water supply and cholera and typhoid was finally understood. From now on municipal authorities demanded not just efficiency but guarantees that the water being delivered for domestic consumption was clean and disease-free. For Générale des Eaux, the Public Hygiene Act meant hefty investment in research and new machinery. Treating waste water before it ran back into the clean water supplies also became a priority.
There was, too, a new competitor in the field. Société Lyonnaise des Eaux et de L’Eclairage was founded in 1880 and by the start of the 20th century had established itself as a force to be reckoned with. From then on, something of a race developed between the two companies to acquire market shares in the supplying of water to unserviced municipalities. Between 1900 and 1940 the rate at which water supply networks spread through France accelerated with each decade. Both companies expanded their areas of influence by buying up local water companies and overhauling their operations, so that by the outbreak of World War II Compagnie Générale des Eaux and Société Lyonnaise des Eaux et de L’Eclairage supplied 50% of all town dwellers.
Dominating the fortunes of Compagnie Générale des Eaux in the postwar years was the personality of Guy Dejouany. An engineer by profession, he was educated at the Ecole Polytechnique and, after appointments in Metz and Paris, joined Générale des Eaux in 1950. His rise through the company was swift. A director in 1960, he became deputy director general in 1965, director general in 1972, and president and director general in 1976. In the 1960s he was instrumental in the development of a thermal energy program, showing himself to be a strong advocate of diversification beyond the traditional water concerns. Moreover, he turned the company from a fairly institutional concern into a dynamic, highly diversified group which, in 1991, was one of the most successful companies on the Paris Stock Exchange. Dejouany has remained a decidedly unpublic figure, declining to give interviews and running an unusually small headquarters with only 15 managers. Dejouany was involved in the first tentative moves, in the 1970s, into urban cleaning and maintenance, waste, electrical contracting, house building, and construction.
By 1981 Compagnie Générale des Eaux was beginning to make the headlines with its profits of FFr331 million. Ironically, its attractiveness nearly brought about its downfall. At the start of the 1980s, 75% of shares were held by small investors, headed by Dejouany. In March 1981 Compagnie Générale d’Electricité announced a 15% stake, a significant interest held by a large company. Two years later Saint-Gobain, the glass and pipe manufacturer, which had already bought enthusiastically into Olivetti and Bull CH Honeywell only to have the government insist that it pull out, announced a 33 % holding in Compagnie Générale des Eaux. Months of complicated manouvers on the Paris Stock Exchange had been necessary, but Générale des Eaux had exposed itself to the risk of a buy-in by a large company when it issued new shares at the start of 1983 to raise capital for investment. The announcement brought crises within the water company and within the government. Dejouany and a number of government critics complained that Saint-Gobain, one of France’s six major companies nationalized in 1982, was attempting a creeping nationalization of the water company. Saint-Gobain replied that it was merely seeking to expand its business by ordinary means, but was soon requested by the government to cut its stake to 20.7%. Dejouany further redressed the balance by asking Schlumberger, the Franco-American service and electronics group, to buy a 10% share at a cost of FFr550 million to offset Saint-Gobain’s interest.
This share purchase ended the crisis and signaled the end, too, of the growing pains of Générale des Eaux. From this moment on, the company went from strength to strength, multiplying its interests abroad and buying into some of France’s leading companies at home. The results were dramatic. The 1980s, as a whole, saw sales at home increase seven and a half times, from FFrll.5 billion to FFr76.5 billion, and sales abroad multiply 35 times, from FFr630 million to FFr22 billion. Net profits rose from FFr331 million in 1981 to FFr766 million in 1986 and then took off sharply to finish at FFrl.8 billion in 1989.
The weighty program of investment and activity abroad produced both admiration and controversy in countries targeted for Générale des Eaux treatment. In 1991 Générale des Eaux was now the second largest water distributor in Spain and the third largest distributor of bottled water in the United States, and also supplied water in Portugal, Malta, and Italy. It collected waste in Bogota and Prague, cleaned the streets and underground system of Madrid, supplied cable television in Montreal, and managed industrial waste and thermal power from California to Benelux.
Générale des Eaux also moved across the English Channel. Britain in the late 1980s, with a water industry heading for privatization and local authorities beginning to put many of their service contracts out for tender, was ripe for investment. Lyonnaise des Eaux and Société d’Aménagement Urbain et Rural (SAUR) made large tenders for the ten regional water companies, Lyonnaise paying £47.6 million for Essex Water in June 1988, and SAUR paying £58.6 million for Mid Southern Water in January 1989. Générale des Eaux, in contrast, focused on buying shares in a number of smaller companies, including Three Valleys, Folkestone & District, Mid-Kent, Severn and Trent, and Bristol, and looked to the wider areas of energy, waste, healthcare, construction, and cable television to establish a foothold in Britain. The foothold was designed to be flexible. When British electricity companies were privatized in 1990, Générale des Eaux dropped some of its water interests and bought into Associated Electricity. Similarly, when television franchises were put up for bids in 1991, Générale des Eaux bought shares in a number of cable television operations. Less expected was the purchase of American Medical International’s chain of private hospitals in Britain in March 1990 and an 83% stake in Norwest Hoist. In June 1991, Générale des Eaux’s U.K. waste company Onyx announced a seven-year rubbish collection contract with the city of Liverpool, the latest of twenty such contracts with municipalities all over Britain.
The progress of Générale des Eaux in Britain mirrors the development of the company in France during its early days in the 19th century. The profits have been just as rich—in 1990 the company made £900 million in Britain, which now represents almost one-tenth of total group sales revenue worldwide. In the general spread of its international and home operations there are similarities, too, in company behavior in the previous century and in the present day. Générale des Eaux is responsive to current environment issues. In May 1990 it paid US$100 million for a 16% stake in Air and Water Technologies, a major pollution-control company based in New Jersey in the United States. Air, water, and soil pollution prevention is high on the list of priorities for Générale des Eaux in the 1990s and its activities have already earned it attention from Europe’s press for its environmental concerns.
Générale des Eaux’s interests in cable television and cellular car phones include a 21.6% share in Canal Plus, 90% of Générale d’Images, and 80% of Compagnie Générale de Vidéo-communications, making Générale des Eaux the leading operator of cable networks in France. Although the 1991 Gulf War boosted viewing figures, cable television has yet to take off in a big way, but it is thought that the mid-1990s will see a large increase in the subscription base. The launch of cellular earphones showed quicker returns. Between the inception of the service in March 1989 and the end of the year, there were 10,000 subscribers. At a European level, the Carphone subsidiary, Compagnie Financière pour le Radio Téléphone, works with BMW and Veba in Germany to install telephones directly.
In addition to entering the communications sector, Générale des Eaux had bought into a number of French blue chip companies including, since 1986, Saint-Gobain. Saint-Gobain’s major subsidiary, Société Générale d’Entreprise, which had in turn been acquired from Compagnie Générale d’Electricité, was bought out by Générale des Eaux in 1988, thereby giving it a major position in France’s construction industry. Phénix, Seeri, and Sari have added to Générale des Eaux’s command in this area, with projects such as the La Défense building in Paris. In Paris, the company cleans the Louvre, the Métro, the Ministry of Finance, and the Musée d’Orsay art gallery, and collects waste for Peugeot, Air France, the SNCF (Société Nationale des Chemins de Fer Français), and Nestlé. The company plans to move into health care and leisure in the 1990s. What remains to be seen is how the company will fare when Guy Dejouany eventually retires, and how it intends to consolidate the tremendous advances of the 1980s.
Compagnie des Eaux et de 1’Ozone (84.9%); Société Française de Distribution d’Eau (84.9%); Compagnie Fermière de Services Publics (78.1%); Compagnie Méditerranéenne des Services d’Eau (96.4%); Société des Eaux de Melun (85.8%); Compagnie des Eaux de Paris (99.8%); Société des Eaux du Nord (49.5%); Société des Eaux de Marseille (48.6%); Société des Eaux de Versailles et de Saint-Cloud (50%); General Utilities (United Kingdom); Sogesur (Spain, 75%); Sade-Compagnie Générale de Travaux d’Hydraulique (92.9%); Société des Tuyaux Bonna (91.7%); Omnium de Traitements et de Valorisation (97.9%); SEPEREFTMP; Compagnie Générale de Chauffe (90.8%); Compagnie Financière Montenay (99.8%); Compagnie Générale de Travaux et d’Installations Electriques (95.8%); Santerne (88.6%); Groupe Energies (99.9%); Sofitam (83%); Société Lyonnaise d’Exploitation de Chauffage (98.5%); Société Prodith (96.8%); Cofima (95.2%); Compagnie Générale d’Entreprises Automobiles (CGEA) (83.9%); Société d’Assainissement Rationnel et de Pompage (SARP) (95.5%); SARP Industries (95.1%); Union de Services Publics (83.2%); Start Barla (76.4%); Société d’Equipments Manutentions et Transport (Semât) (98.6%); Comatec (44.8%); Traitement des Résidus Urbains (44.7%); SMA (Spain); Rénosol (50%); SGE (74.6%); Compagnie Générale de Bâtiment et de Construction (CBC) (80%); Sari (54.9%); Seeri (64.6%); Immobilière du Parvis (58.5%); Défense Nord (60%); Compagnie Générale de Vidéocommunication (86.1%); Générale d’Images (99.9%); Société Française de Radiotéléphone (SFR) (41.1%); General Cable; Antennes Tonna (48.9%); Compagnie Générale de Santé (90.9%); Générale de Santé Internationale; Locapark (88.7%); Setex (98.7%); Sappel (94.9%); Aqualand (66.5%); Angibaud (72.5%); Société d’Applications Hydrauliques, d’Investissements et d’Entreprises (95.7%); Anjou International (U.S.A.); Société Nouvelle d’Investissements et de Gestions (93.7%); IOS (59.1%);