Vivendi: Revitalizing A French Conglomerate

During the 1980's the French economy expanded assimilating rapidly the scarce existing venture capital from the week capital market. As a company with a healthy cash flow, Compagnie Gйnйrale des Eaux (CGE) took advantage of economic circumstances and pursued a strong expansion strategy entering different business realms like real estate, healthcare, or telecommunication. Although this strategy worked well with the current economical conditions, the absence of an adequate organizational structure and control was the main cause for the serious financial problems that followed on the late 1990's.

The person responsible with the vast expansion of CGE, Guy Dejouany promoted a strong asset diversification strategy. This was possible through a highly decentralized decision-making process which let the subsidiary heads to pursue expansion measures. However, Dejouany overlooked all the company's operations, having individuals reporting directly to him. His management style was based on trust, delegating a lot of power to the individual managers. I believe this system would have worked for a relatively small company/institution, but as soon as the conglomerate grew and everything turned out to be too complex, this type of communication became ineffective.

Still, Guy Dejouany's tactics had a tremendous impact on the company's growth. During his presidency, the company's revenues increased from 15 billion Frf. in 1976 to a staggering 166 billion Frf. in the early 1990's. However, his strategies worked as long as the economy was doing well. Once the economy entered the recession phase of the cycle, problems became visible. All these, among a corruption scandal and a cash crisis converged into a low value for the company's stock.

Jean-Marie Messier came into the picture a true reformer. He considered that CGE needs to return to its core activities: Utilities (water, waste management, energy, transport), Communications, and Real Estate. Because during the Dejouany' presidency the real estate sector of the company caused the most problems, Messier decided to reduce its importance in the company's operations.

Through divestment Messier reduced the debt ratio, and consequently the company's leverage. He sold many of the nonessential businesses, but still maintaining a healthy diversity. Strategic alliances with wealthy and well established partners guaranteed a flow of capital for