Alcatel Alsthom Compagnie Générale d'Electricité History

Company History:

With operations in more than 100 countries, Alcatel Alsthom Compagnie Générale d'Electricité was the second-largest company in France in 1993. After almost a century as Compagnie Générale d'Electricité, the conglomerate changed its name in 1991 to reflect its two primary subsidiaries, Alcatel N.V. and GEC Alsthom. Alcatel, which brings in about 60 percent of the group's sales, was the world's largest manufacturer of telecommunications equipment, systems, and cables. GEC Alsthom, a 50/50 joint venture with Great Britain's GEC plc, was one of Europe's top power and transportation concerns. It constituted about 20 percent of the group's annual sales, and was known for the development of France's high-speed Trains a Grand Vitesse. Alcatel Alsthom Compagnie Générale d'Electricité also held publishing and nuclear interests in the early 1990s.

Compagnie Générale d'Electricité (CGE) was created in 1898 through the combination of two electric generating companies and a light bulb manufacturer. The merger, engineered by Pierre Azaria, formed one of Europe's pioneer electric power and manufacturing companies, with interests in electric utilities in France and abroad.

During the first half of the 20th century, CGE expanded its electrical equipment manufacturing through acquisitions. The most important of these were: Société Francaise des Cables Electriques Bertrand-Borel, merged in 1911; Atelier de Construction Electrique de Delle, acquired in 1912; and Cie Générale d'Electro-Ceramique, purchased in 1921. The growth led CGE into building and equipping electric power plants as well as manufacturing the cable used for the distribution of electricity.

In the 1920s CGE entered into a joint venture with its primary French competitor, Thomson-Brandt (an electronics manufacturer later renamed Thomson). The creation of the new concern, a light bulb manufacturer called Cie des Lampes, was encouraged by the French government, which would involve itself in CGE's affairs in varying degrees over the course of the 20th century.

During the 1930s CGE diversified through the acquisition of construction and civil engineering companies and added batteries to its line of electrical products. By World War II, CGE was a diversified manufacturer of electrical equipment, a primary supplier to utilities, and itself an important distributor of electricity. The French government nationalized CGE as part of its effort to coordinate resistance to the German attack. But when the country came under Nazi occupation in 1941, the business was taken over by the invaders and run by collaborators. Unfortunately, this made CGE's factories regular targets of Allied bombs. After the war, all of France's electric utilities were nationalized, but the remainder of CGE's operations returned to private management. The company's traumatic experience under government control led it to reduce its dependence on government contracts.

CGE played a key role in the postwar redevelopment of the French economy. The company diversified into home appliances, telephone equipment, and industrial electronics, and expanded its traditional businesses in the manufacture of electric utility equipment, especially cables. By the end of the 1950s, CGE was a conglomerate with over 200 subsidiaries and the bureaucratic inertia that came with such a far-flung enterprise.

A reorganization in the 1960s formed six primary business groups: power generation, engineering, telecommunications, cable and wire, raw materials, and other products. In 1966 the conglomerate acquired a large construction company, the Société Générale d'Entreprises. In the late 1960s the French government enforced a restructuring of the country's entire electrical engineering industry. The government felt that the industry would run better if Thomson-Brandt's large Alsthom subsidiary, which manufactured power generating equipment and constructed power plants, were transferred to CGE. CGE, in turn, was enjoined to shift its data processing and appliance businesses to Thompson.

The new arrangement seemed to work out well at first: France enjoyed a period of rapid growth during the 1970s. CGE expanded its telecommunications interests with the purchase of Alcatel, a French communications pioneer established in 1879. Alcatel had introduced high-speed, high-capacity digital switching exchanges in 1970. The new division was combined with CGE's existing telecommunications group, CIT, to form CIT Alcatel. The conglomerate's General Contracting group became one of Europe's top construction companies with the acquisition of a controlling interest in Sainrapt et Brice. CGE merged its Alsthom group with Chantiers de l'Atlantique, a top shipbuilding company, to form Alsthom-Atlantique, in 1976.

During the 1980s CGE consolidated its manufacturing and service operations in two broad areas: communications and energy. Communications included: public network switching, transmission, business communications, and cable manufacture. Energy included power generation, transmission and distribution, railway transport, and battery manufacture. Over the course of the decade, several major acquisitions were made, and non-core businesses were divested.

After Francois Mitterand's administration re-nationalized CGE in 1982, the company acquired the electrical equipment operations of Sprecher & Schub and the railroad business of Jeumont-Schneide. The 1983 transfer of Thomson's telecommunications operations to CGE made the latter company the fifth-largest telephone equipment manufacturer in the world.

When conservative Jacques Chirac was elected prime minister of France, the political pendulum swung away from nationalization. In 1986 CGE returned to private control with a US$1.9 billion initial public offering--one of the largest stock offers in French history. Pierre Suard became chairman and CEO. He sought to remake CGE as an international conglomerate run by a cosmopolitan management team. He eschewed France's renowned cultural pride by making English the official working language at CGE's Paris headquarters.

Suard was praised for his skill with acquisitions and divestments, which he began to apply as soon as the company was privatized. CGE increased its energy holdings with the purchase of a 40 percent stake in Framatome--a nuclear power company--and sold unsuccessful operations in markets like televisions and personal computers.

One analyst called the conglomerate's 1986 purchase of a majority interest in the European telephone equipment operations of the United States's ITT Corp. "the most important development in CGE's modern history." ITT's operations were combined with CGE's CIT Alcatel subsidiary to form Alcatel N.V., the world's second-largest telecommunications company. CGE owned 55.6 percent of the new multinational operation, which was registered in Holland with headquarters in Brussels. ITT held 37 percent of Alcatel, and the remainder was split between Belgium's Société Générale and Credit Lyonnais, a French bank. Alcatel N.V. became the hub of CGE's strategy as a privatized company. From 1980 to 1990 the group's telecommunications business grew from US$9 billion annually to US$27.6 billion.

A 1987 acquisitions spree diversified CGE into pumping systems, batteries, nuclear boilers, and publishing. CGE also formed joint ventures with the United States' Intermagnetics General Corp., Ferro Corp., and Exide Electronics during the year.

The 1989 merger of CGE's Alsthom power and transportation subsidiary with the United Kingdom's General Electric Company's Powers System Division formed GEC Alsthom N.V., a 50/50 joint venture. CGE increased its ownership to 61.5 percent later that year through an internal consolidation of two major subsidiaries, Compagnie Financiere Alcatel and Alsthom. CGE also acquired 15 energy, transportation, and communications companies during that year alone.

Suard was acclaimed for his ability to integrate these new divisions' management, research, and manufacturing into the overall group scheme. He also emphasized research and development, spending about eight percent of total sales, or US$2.3 billion, in 1990 alone.

During the 1990s CGE focused on forging strategic alliances with foreign companies. It was hoped that the joint ventures would maximize the partners' research and development efforts and give CGE entree to local markets. In 1990 the conglomerate formed a joint venture with Fiat S.p.A. that gave CGE control over the telephone transmission business of Fiat's Telettra S.p.A. subsidiary. The two parent companies exchanged shares (Fiat received six percent of Alcatel and Alcatel secured three percent of Fiat), and Telettra was merged with Alcatel's existing Italian operations. The new venture was 75 percent owned by Fiat and 25 percent owned by Alcatel N.V. This complex deal was carefully observed by the European Commission, which used its authority over cross-border business alliances to regulate transactions between the two companies.

From 1985 to 1990 alone, CGE's sales doubled, from Ffr 71.94 billion to Ffr 143.90 billion. As the company grew, its net income on sales followed suit, increasing from 1.1 percent in 1985 to 2.9 percent in 1990.

During 1990 Suard decided to change CGE's name, which was often mistaken in the global marketplace for the United States' GE (General Electric Corp.) or the United Kingdom's GEC (General Electric Co.). In fact, the French entity was prohibited from using its initials in some markets because of this type of confusion. Although not particularly well known in the United States, the Alcatel division had by this time overtaken AT&T as the world's largest manufacturer of telecommunications equipment. The Alsthom name was well known in heavy electrical engineering, especially for the development of France's Trains a Grande Vitesse. These two subsidiaries had also grown to become the primary businesses of CGE by 1990. As of January 1, 1991, CGE's name was changed to Alcatel Alsthom Compagnie Générale d'Electricité, and the conglomerate was commonly known as Alcatel Alsthom.

Suard hoped to parlay the company's more cosmopolitan name into an increased global presence: in 1991, 80 percent of Alcatel Alsthom's business was still focused in Europe. Efforts were concentrated on Asia (especially China), the Pacific Rim, and Latin America. The People's Republic of China represented a substantial opportunity for growth, because its 1.16 billion population needed the three services Alcatel Alsthom was prepared to provide: communications, energy, and transportation. Although the country's limited infrastructure and politically inspired five-year plans held up progress, by 1991 GEC Alsthom was China's primary provider of power, and Alcatel had a 40 percent share of the country's public communications equipment market. By 1992, sales to China contributed 5 percent of Alcatel Alsthom's total sales.

Alcatel also targeted the substantial U.S. telecommunications equipment market, which purchased 40 percent of the world's telephone equipment. Alcatel acquired America's number-three supplier, Rockwell International Corporation's telephone transmission equipment division, for US$625 million in 1991. When combined with the company's existing Alcatel Network Systems subsidiary, the purchase brought Alcatel's share of the U.S. market to 15 percent, a distant second to AT&T's 58 percent stake. Alsthom also penetrated the U.S. market when it formed a consortium to build a TGV-type high-speed rail system linking the major cities of Texas in the early 1990s.

The new Alcatel 1000 telecommunication system, developed to provide high-speed data and image transmission and high-density television capability, as well as conventional telephone functions, was launched in 1991. Alcatel also became the first European company to test its cellular phone system that year.

Alcatel Alsthom purchased two more telecommunications and power cable manufacturers, Canada Cable & Wire Company and Germany's AEG Kabel A.G., in 1991 and formed a "Space Alliance" with two European companies, Aerospatiale and Alenia, and the Loral Corporation of New York. The cooperative venture formed the world's second-largest supplier of satellite equipment.

Alcatel Alsthom slowed its acquisitions pace in 1992, but bought out ITT's 30 percent stake in Alcatel N.V. for US$3.7 billion in cash and a 7 percent share of Alcatel that spring. The transaction made ITT one of Alcatel's primary shareholders.

By the early 1990s, Alcatel Alsthom controlled 80 percent of France's telephone transmission business. The company had also captured 20 percent of Germany's telephone equipment market, second only to the venerable Siemens A.G. In 1993 Alcatel Alsthom commanded 23 percent of the worldwide market for telephone line transmission. Unlike other segments of the telephone equipment business, this highly profitable trade had grown on strong demand for high-capacity fiber-optic cables. Whereas other electronics companies were hard hit by the global recession of the early 1990s, Alcatel Alsthom suffered slower growth, rather than an actual decline. The company hoped to expand into the development of software for telecommunication switching and transmission in the 1990s.

Principal Subsidiaries: Alcatel N.V. (Netherlands, 69.6%); GEC Alsthom N.V. (Netherlands, 50%); Cegelec; Ceac (48.3%); Framatome (44.1%); Sogelerg; Occidentale Forest Industries (United States); COF; Groupe Express; Hoche Friedland (50%); SEPA; Electro Bail (60%); Locatel (99.7%); CGE Maroc (Morocco, 50%); Alcatel Alsthom Recherche; Aurelec; Cie Immobiliere Meridionale; Civelec; Electro Banque; Opagep; Samag; Soficim; Societe Immobliere Kleber Lauriston; Cemilec. The holding company has subsidiaries in Austria, Australia, Belgium, United Kingdom, Canada, Italy, Mexico, United States, Spain, Norway, Switzerland, Taiwan, Germany, and in more than 75 other countries around the world.

Further Reading:

• "Alcatel Alsthom: Power Play," Economist, August 3, 1991, pp. 65-66.
• "ITT Sells Its 30% Alcatel N.V. Stake for $3.7 Billion for $600 Million Gain," Wall Street Journal, July 6, 1992, p. 16(E).
• Mason, Joanne, "Giants Ride Out the Crisis," International Management, January/February 1993, pp. 26-59.
• Morant, Adrian, "Exploring New Markets from the Inside Out," Telephone Engineer & Management, August 1, 1991.
• Neher, Jacques, "A French Giant Stalks U.S. Telephone Market," New York Times, November 25, 1991, p. D1(L).
• "Net Income Increased 20% to $1.13 Billion Last Year," Wall Street Journal, April 9, 1992, p. A11(E).
• Stallmann, Linda, "Top 50 European Electronics Companies: Sales Were Up, but Profits Nosedived," Electronic Business, October 21, 1991.

Source: International Directory of Company Histories, Vol. 9. St. James Press, 1994.

Read more company histories

• Alberta Energy Company Ltd.
• Albemarle Corporation
• Alba-Waldensian, Inc.
• Alcatel S.A.
• Alcoa Inc.
• Alderwoods Group, Inc.