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Professor Cynthia A. Montgomery and John M. Turner (MBA '97), with the assistance of Elizabeth J. Gordon, prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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C Y N T H I A A . M O N T G O M E R Y
Vivendi (A): Revitalizing a French Conglomerate
After nearly two decades under the leadership of Guy Dejouany, the November 1995 board meeting of Compagnie Générale des Eaux (CGE) marked not only the end of an era, but the transfer of control to a new captain, Jean-Marie Messier. Besides the obvious difference in age between the 76-year-old Dejouany and the 38-year-old Messier, the contrast between the two in terms of leadership style and strategic direction could not have been sharper.
In 1976 when Guy Dejouany took control, CGE was primarily a water utility company with some activities in waste treatment. As the 1980s progressed, reacting to what he saw as "unique opportunities,"1 Dejouany used the cash flow from the core utility businesses to expand into a wide range of ventures. By November 1995, revenues were eleven times the 1976 levels and the company had diversified into a wide variety of businesses including real estate, healthcare, and telecommunications. CGE was one of the largest French companies; indeed, it was in the top 100 companies in the world. (See Exhibit 1.)
By the mid-1990s, however, CGE had serious financial problems. In 1995 the company experienced a net loss of 3.6 billion French francs (Frf). The company's real estate investments had collapsed, and debt levels ballooned. The stagnant share price caused investors to question whether the problems were a blip on the radar or reflected a more fundamental problem in the direction of the company.
After two years as a partner at the investment banking firm Lazard Frères, including five months in New York, Messier understood all too well the demands of the capital markets and the push for "shareholder value." From the beginning it was clear that Dejouany's handpicked dauphin aimed to take the company in a radically new direction.
I. Water Utility Business
The "heart and historical roots of CGE were in the management of the municipal water services in France, not...