Lyonnaise des Eaux-Dumez

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Lyonnaise des Eaux-Dumez

72 avenue de la Liberté
92022 Nanterre
France
(1) 46 95 50 00
Fax: (1) 46 95 51 86

Public Company
Incorporated: 1880 as Lyonnaise des Eaux et de l’Eclairage
Employees: 110,000
Sales: FFr75.51 billion (US$14.58 billion)
Stock Exchange: Paris

The Lyonnaise des Eaux-Dumez group was formed in 1990 by the full merger of the groups Lyonnaise des Eaux and Dumez, and now ranks among the 15 largest industrial groups in France. Lyonnaise des Eaux-Dumez offers a range of services in national and regional development of local industries and public services, particularly in urban planning and in the protection of the environment, to local communities, industrial companies, and individuals. The newly-formed group is active in the construction, real estate, environmental protection, and services sectors.

The group’s services activities are a direct inheritance of the activities of Lyonnaise des Eaux et de l’Eclairage. This company was founded in 1880 by the Crédit Lyonnais, one of France’s largest banks, to manage the public services of water and gas distribution which municipalities entrusted to private companies by concessionary contracts. In this, it was following the example of the Compagnie Générale des Eaux, created in 1853, which would remain its main rival.

The Second Empire in France (1852-1870) and the years immediately after it were a period of considerable growth in large urban public works. Large parts of Paris were rebuilt according to the plan designed by Baron Georges Eugène Haussmann. Urban planning grew in popularity and spread to France’s main cities and towns which, at the same time, created or improved upon their water distribution equipment. Cannes, for example, was developed thanks to Lord Brougham, Lord Chancellor of England and Wales, and the French writer Prosper Mérimée, whose influence with the emperor Napoleon III allowed them to secure the concession for the Canal de Siagne ensuring Cannes’s water supply. One of Lyonnaise des Eaux’s first actions after its foundation was to buy up the rights for this canal.

From the first years of its existence the company was not satisfied with the management alone of water and gas distribution activities, so it acquired some of the capital of companies already involved in this sector. Lyonnaise des Eaux also secured a foothold in Spain from that time, with the acquisition of two-thirds of the company Les Eaux de Barcelone.

During the company’s first 30 years it grew at a moderate but steady pace. Lyonnaise des Eaux concentrated on establishing its activities in the suburbs of big towns that lacked equipment. Its activities were evenly divided among water, gas, and lighting. Often, in the same town, it would go from providing one service to adding another, for example moving on from water to lighting or from gas to electricity. Its activities were mainly based in France, although it also had interests in Spain and North Africa, the latter then a part of France’s colonial empire.

World War I halted the group’s development just as it was beginning to accelerate. The installations in North Africa were destroyed. Public lighting was reduced for security reasons and to economize on the use of coal. Social security contributions rose, as did the prices of raw materials, whereas the rates set down in the concessionary contracts were fixed. This discrepancy inevitably caused the company financial difficulties. In 1917, for the only time in its history, Lyonnaise des Eaux was not able to pay dividends to its shareholders.

Immediately after the war Lyonnaise des Eaux embarked upon the production of electricity, thus becoming a fully-integrated industrial group. The instigator of this policy was Albert Pestche, an engineer and lawyer. He joined Lyonnaise des Eaux in 1896, having left the service of the state, where he was employed in public works. He was president of the company from 1922 to 1933. During his early years with the group he acquired technical expertise in electricity production and became convinced that it was necessary to centralize and unify production facilities throughout France. He also attached great importance to the role to be played by hydraulically produced energy.

In 1919 Pestche created the Union d’Electricité in association with the other companies that supplied electricity to the networks of the Parisian suburbs and to the public transport services, both metros and trains. The Union d ’Electricité ’s aim was to centralize production—each regional distribution sector had until then been supplied by a different production center, often with different frequencies. The Union d’Electricité undertook the building of hydroelectric dams, thermal power stations, transmission lines, and converter stations. In this manner the centers supplying the Parisian suburbs and then those across the whole of France were gradually unified. To release the capital needed for these investments, Lyonnaise des Eaux sold off certain companies and raised its capital six times in ten years. Lyonnaise des Eaux became one of the main electricity suppliers in France and took over the management of the Union d’Electricité at the beginning of the 1930s.

At the same time, Lyonnaise des Eaux increased its shareholdings in electricity companies without neglecting water and gas distribution. The company extended its water distribution network in France and also in Africa, especially in Morocco. Lyonnaise des Eaux broke new ground when it created a laboratory in a suburb of Paris for water monitoring and analysis. In the gas sector it continued its policy of grouping together companies and, as in the water sector, looked to develop innovative techniques in the areas of pipe manufacturing, pressurized gas, and long-distance transport.

The Depression of the 1930s affected the group badly. Industrial production and industrial electricity consumption slowed down. The French state reduced subsidies to municipalities for public lighting and exerted pressure on the concessionary companies to keep their rates moderate.

A coalition of left-wing parties came to power in 1936, provoking a social explosion in France. Violent strikes took place. The cost to companies of new social legislation—including a 40-hour maximum working week and the introduction of compulsory paid holidays for all workers—along with the devaluation of the franc disturbed economic activity generally and Lyonnaise des Eaux in particular. However, its constant development and its investments in francophone Africa and Latin America helped the company compensate for the difficulties it was experiencing in France and enabled it to figure among the top French industrial enterprises.

Lyonnaise des Eaux’s success during this period was due to the work of Albert Pestche and his second-in-command for many years, Ernest Mercier, who succeeded him as president. Mercier was an engineer who had acquired his expertise in electricity production in the service of the state. Invited by Pestche to join Lyonnaise des Eaux, he continued to use his skills in the field of energy before becoming president of the company from 1933 to 1954. He therefore took on the heavy responsibility of leading Lyonnaise des Eaux through World War II and the period of nationalization that followed.

During World War II, Lyonnaise des Eaux, like other companies, had to overcome the difficulties created by the lack of personnel, the disruption in transport services, and the coal shortages. In addition, installations were destroyed by air raids, and the company faced financial difficulties.

Immediately after the war Lyonnaise des Eaux received a further blow: the nationalization of a large part of its activities. The government of liberation, under Général Charles de Gaulle, decided that all electrical production activity should be transferred to the state. This program of nationalization was in perfect accord with the spirit of the time; it satisfied both the collectivist ideology of the socialist and communist parties, whose influence then was considerable, and Général de Gaulle’s conception of the role of the state. “From now on, the role of the state is to ensure the development of the important energy sources,” he announced to the Consultative Assembly on March 2, 1946. The vote was passed for the nationalization of the electrical and gas industries on April 8, 1946. The transfer of activities to Electricité de France and Gaz de France took place in the same year. The only production facilities to escape nationalization were those in which local communities already held a majority interest. Lyonnaise des Eaux thus kept its interests in a gas distribution company in Strasbourg, in the east of France. The nationalization law did not establish terms of indemnity payments; these would only be made five years after the transfer of the property to state control and after the introduction of several contentious procedures. La Lyonnaise sued the French state for nationalization compensation.

Lyonnaise des Eaux therefore was forced to restructure the range of its activities. At first it fell back on its traditional activities; it then tried to diversify into other sectors. Lyonnaise des Eaux intensified its involvement in the energy and water sectors both in France and in francophone Africa. The group did not totally abandon the electricity sector. Outside France, it continued its production activities. Within France, it became involved in sectors connected with electricity production, such as electrical systems and equipment for industrial purposes and for building.

The company was also very active in water distribution, an industry that was being radically transformed. Most of the distribution networks had been damaged during the war and had to be replaced. The installations required modernization, and new technology, notably in water purification, had to be incorporated. Throughout this period Lyonnaise des Eaux accelerated its expansion into francophone Africa, providing water, gas, and electricity to towns.

The group also began to diversify. The nationalization indemnity payments enabled it to invest in industries more or less linked with its traditional activities. It decided to exploit its expertise in electricity by increasing the room allocated in its portfolio to technical research companies.

Lyonnaise des Eaux took advantage of the boom in the construction industry in the immediate postwar period to increase its shareholdings in the public works and construction sectors. It strengthened its links with companies involved in road construction and in building prefabricated houses. Its technical expertise in generators led the company to embark on engineering equipment production. In the energy sector it took an active interest in drilling and exploration for oil. Lastly, the group entered the electronics sector.

Lyonnaise des Eaux’s development was hindered by the worldwide process of decolonization, which affected the majority of the company’s activities in French overseas territories. Until the 1950s Lyonnaise des Eaux was established in numerous African countries: Algeria, Morocco, Tunisia, Madagascar, Guinea, Congo, Central Africa, Senegal, and Togo. All these countries were to become independent. In certain cases, for example in Morocco, the state would wait for the end of the concessionary contract before transferring management to wholly state-owned companies. In other cases, the contracts were revoked abruptly. Negotiations over indemnity payments for these nationalizations were protracted, and compensation was hard to obtain. In some cases, however, Lyonnaise des Eaux managed to maintain its presence by working in a technical capacity for the new managing companies.

Faced with this reduction in its activities, Lyonnaise des Eaux underwent some restructuring. It abandoned its shareholdings in certain sectors, such as mechanical construction, electronics, and oil exploration. It then set about changing its strategy. Whereas before it had only held shares for investment purposes, Lyonnaise des Eaux decided to strengthen its direct involvement in activities connected with the protection of the environment. The end of the 1960s marked the beginning of the period when western countries began to become conscious of the problem of industrial and domestic pollution and of the necessity for environmental protection. Lyonnaise des Eaux already had experience in the treatment and purification of water. It moved from the treatment of liquid waste to solid waste and became involved in the collection and treatment of household refuse and industrial waste. The company also entered the heating sector, producing equipment for hot and cold air distribution, district heating, air-conditioning, incinerators for waste management, and flame-retardant materials.

Jérome Monod’s appointment as president of the company in 1980 led to further restructuring of the company’s activities. Monod was a high-ranking civil servant who started his career working for the state. He worked notably for the Ministry of Public Works, where he was principally concerned with dealing with problems in national and regional development of local industries and public services. Appointed director of the cabinet of prime minister Jacques Chirac, he followed the latter in 1976 to create the political party Rassemblement pour la République, for which he would serve as general secretary. He joined Lyonnaise des Eaux in 1979. Monod soon decided to refocus Lyonnaise des Eaux’s activities on the provision of services to local communities. New divestments of subsidiaries took place as a result, in particular in public works, construction, and oil drilling, and the group ceased its manufacturing activities proper. The provision of local services was strongly encouraged by the laws of decentralization passed from 1982 onward, involving the transfer of power from the centralized state to the local communities. All Lyonnaise des Eaux’s activities benefited—the distribution of water and energy, the collection of refuse, and the servicing and maintenance of public buildings.

To compensate for the slowing down of growth in the French market for water and energy distribution, Jérome Monod decided to expand the range of services the group offered, and at the same time to improve Lyonnaise des Eaux’s international position. The group therefore embarked on new activities in the services sector. It took over Pompes Funèbres Générales, the European leader in funeral services. It also entered the television sector. The modification in the laws on audiovisual communications in France brought about by the privatization of several public channels allowed Lyonnaise des Eaux to participate in the creation of the private channel M6, of which it owns 25 %. The company also took part in the creation of local cable television, managing several networks, notably in the Paris region.

Lyonnaise des Eaux also moved into the health sector. The change in the structure of the population and, in particular, the increase in the number of old people dependent on help led the group to build retirement homes offering medical services. Lyonnaise des Eaux also became active in the leisure sector and managed the construction of several golf courses.

Meanwhile Lyonnaise des Eaux embarked on a course of international expansion, targeting countries other than the francophone ones in which it had traditionally operated. This policy was favored by the growing privatization of public services that began to occur in various countries. Within Europe, Lyonnaise established itself, or continued to develop, in Spain, the United Kingdom, Belgium, Italy, and Portugal. It was also active in the United States. In Asia, from 1980 onward, it developed its activities in Japan, China, and numerous southeast Asian countries, as well as in Australia and Polynesia.

In the meantime it became increasingly obvious to Jérome Monod that a synergy existed between the provision of services to the towns and urban development, including the construction, maintenance, and servicing of houses and other buildings. The synergy was commercial, as in both cases the clients—local, municipal, regional, and government authorities-were of the same kind. It was also functional; with regard to water or heat distribution, improvement of the services offered often depended upon the improvement of urban infrastructure, even upon technical assistance at the time of construction of the facilities.

Monod also wished to enlarge Lyonnaise des Eaux’s financial base and to reinforce its international development, and therefore envisaged forming ties with a construction group of international standing. This was the Dumez group, which merged with Lyonnaise des Eaux in July 1990.

Dumez is one of the largest French industrial groups, established in 1891, operating both in France and across the world, with over 50% of its activities in the United States. Its core activities are construction and large-scale—long-term contract—works, both directly and via Grands Travaux de Marseille, a 59.7%-owned subsidiary. The group is also involved in related areas, such as road works, real estate, electrical works and equipment, industrial installations, and the management of car parks and concessions on motorways. In 1987 the Dumez group also embarked upon an important diversification into distribution, when it acquired United West-bourne, the leading Canadian distributor of electrical material and plumbing equipment. The newly formed group, combining Dumez’s construction activities and Lyonnaise des Eaux’s service activities, has become “a leading force in construction, urban development, and environmental services,” according to Monod.

In 1990 the group’s turnover was FFr75.5 billion, compared with Lyonnaise des Eaux’s turnover of FFr21 billion in 1989, before the merger, and the group is capitalized at FFr30 billion. The merger’s success depends upon the new group’s ability to exploit the synergies and complementary nature of the two former groups’ activities, both in France and abroad, where almost half of the group’s activities now take place.