Schneider S.A.

1836–1980

After a dizzying series of complicated restructurings, acquisitions, and divestments that began in 1980 when the company was a conglomerate, Schneider S.A. has emerged in the late 20th century reduced, almost, to a position of global leadership in just one area--the electrical industry. Almost, because Schneider has not yet divested its troubled Spie Batignolles electrical contracting and construction subsidiary, which it intends to do. Its other main subsidiary, Schneider Electric S.A.--the core of the new Schneider--specializes in electrical distribution, industrial control, and automation and serves the electrical power, industrial, infrastructure, and building markets. Truly international in operation, Schneider derives only about 37 percent of its sales from its domestic market, with the rest of Europe accounting for about 25 percent, North America for about 21 percent, and the remainder of the world, most notably Asia, for about 17 percent.

Early History

Schneider was originally founded in 1782 to manufacture industrial machinery at Le Creusot. The company was taken over by two Schneider brothers--Adolphe and Eugène--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 manufacturing.

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 1936-39 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. The following year Charles Schneider was killed in an accident; he was the last member of the founding family to head the company.

Empain-Schneider Era, 1963-80

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.

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.

1846–1980

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 a 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 Société de Construction des Batignolles (SCB; founded in 1846 by Ernest Gouin) and the Société Parisienne pour l'Industrie Electrique (SPIE; founded in 1902).

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 Gaston 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.

Restructuring, 1980-87

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 percent to about 5 percent of turnover. As a result, the company also changed its name back to Schneider S.A. A more serious restructuring took place the following year when a Socialist government under President François Mitterand came to power.

1980–1988

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 l'Union Europe&eacute--e.

Between 1981 and 1987 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 percent of total revenue; Merlin Gerin, with 31 percent; and Jeumont-Schneider Industries, with 14 percent in 1987. Reflecting Schneider's position in international markets, 41 percent of the company's revenues were generated through foreign projects.

The person who spearheaded the restructuring effort was Didier Pineau-Valencienne, who was appointed vice-chairman and CEO late in 1980, then became chairman and CEO the following year. Pineau-Valencienne built his reputation by turning around a small French chemical company, then found further success at the French chemical giant Rhone-Poulenc before being asked to take command of Schneider.

During the difficult restructuring process, Pineau-Valencienne gained a reputation for waging controversial corporate battles, even earning the nickname "Dr. Attila." 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 continued with 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.

Major Acquisitions and Further Restructuring, 1988 Through the Mid-1990s

1902–1997

The first of these 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 next turned his attention to the United States. In 1990 Federal Power, a maker of low-voltage distribution equipment and medium-voltage switchgear, was acquired. That same year, Schneider acquired EPE Technologies, a world leader in uninterruptible power supplies (UPS), although Schneider subsequently, in 1996, sold most of its interest in EPE in a leveraged buyout after deeming UPS outside its core businesses. Schneider's U.S. spending spree reached a peak, however, in 1991 when it acquired Square D Company, based in Palatine, Illinois, for US$2.23 billion in another hostile takeover. Square D--founded in 1902 and with sales of US$1.65 billion and operations in 23 countries--was a market leader in electrical distribution, industrial control, and automation products, systems, and services. It became the flagship for Schneider's North American division, which was headed up by Charles W. Denny, who had spent more than 30 years at Square D before being placed in charge of Schneider North America as well as gaining a spot on the Schneider executive committee.

The acquisition of Square D led to the further restructuring of Schneider's industrial operations. In 1991 Schneider increased its interest in Merlin Gerin, and also formed an industrial sector called Schneider Industrie which pulled Schneider's major industrial subsidiaries--Square D, Merlin Gerin, Telemecanique, and Jeumont-Schneider Industries--into an umbrella group. The following year, Schneider divested itself of Jeumont-Schneider, leaving Schneider Industrie with purely electrical industry operations. From that point forward it was clear that Pineau-Valencienne intended for Schneider to eventually reduce itself to its electrical holdings alone.

Further moves over the succeeding years bore this out. In 1992 Schneider gained full control of Merlin Gerin through a merger. The next year the operations of Merlin Gerin, Square D, and Telemecanique were brought together under an overall global management structure where, for example, Schneider North America included the operations of all three companies within North America. Then in 1994, Schneider's corporate structure was further rationalized when a new Schneider Electric S.A. subsidiary, based in France, was created and both Merlin Gerin S.A. and Telemecanique S.A. were merged into the new subsidiary and ceased to exist as separate companies. Although Square D Company technically remained a subsidiary, Schneider essentially positioned Square D, Merlin Gerin, and Telemecanique as its major brands within Schneider Electric.

On the heels of this flurry of activity, Pineau-Valencienne made world headlines when he was arrested in Belgium in May 1994 and jailed for 11 days pending trial in a complex criminal-fraud investigation that involved Schneider's takeover of two Belgian subsidiaries that were remnants of the Empain-Schneider era. After Pineau-Valencienne returned to France following his release on bail, an international warrant was issued for his arrest in early 1995, effectively barring him from leaving France for several months until Belgian authorities finally rescinded the arrest warrant. The case seemed to have made little progress even into early 1997, and Pineau-Valencienne, who stayed in charge of the company throughout the episode, and other Schneider officials continued to insist that the case was entirely groundless.

Meanwhile, Pineau-Valencienne was struggling to deal with Schneider's last remaining non-electrical holding, Spie Batignolles. Spie was active in two main areas: electrical contracting and construction. While the former was related to the activities of Schneider Electric, the latter was not. Furthermore, because of difficult conditions in the French real estate market, Spie's construction sector was performing poorly, posting losses of FFr2.25 billion from 1991 to 1994. Wishing eventually to divest itself of its Spie holding--which was about a 59 percent stake--or at least Spie's construction sector, Pineau-Valencienne decided to first gain full control of the troublesome unit. He did so by engineering a merger between the companies in July 1995, which also had the side benefit of garnering Schneider a large tax credit. Possible buyers of Spie included Candover, a U.K. venture capital group; the French construction group Eiffage; Sweden's Skanska AB; and Amec, a U.K. building group.

Although the acquisition of Square D had significantly increased Schneider's overseas holdings--more than 62 percent of overall revenue was derived from outside of France by 1995--Schneider had in the process saddled itself with a heavy debt burden. Pineau-Valencienne thus identified debt reduction as a key to Schneider's future. The much-anticipated divestment of Spie Batignolles would of course help him do just that, although the company's debt-to-equity ratio had already been reduced to 46 percent by 1995. Schneider's chairman also wished to reduce the percentage of shareholdings held by other French firms; such cross holdings were typical of public companies in France, but Pineau-Valencienne wanted to create a shareholding structure along Anglo-American lines. He also sought to increase the percentage of international investors in Schneider and eventually have Schneider listed on the New York, London, Frankfurt, Munich, and Tokyo exchanges--goals in keeping with the company's global nature. Assuming the company's Belgian difficulties have been laid to rest and Spie can be successfully divested, at the dawn of the new century Schneider appeared to have a very bright future as a global power in the electrical industry.