Corporate Profile: The Gallic master's opening gambit

The boss of a French water and waste management company has just grabbed a 25 per cent stake in BSkyB, leading some analysts to speculate that Rupert Murdoch has met his match in Jean-Marie Messier

JEAN-MARIE MESSIER is well-known in Paris for surprising his competition. But the cherub-faced chief of the French water-to-communications powerhouse, Vivendi, recently increased his visibility outside France when he put BSkyB's chairman, Rupert Murdoch, on the back foot, a stance unfamiliar to the media mogul.

The 42-year-old Frenchman whose company makes most of its money operating municipal water and waste systems, might seem like an unlikely challenger to Mr Murdoch. But in the past two months, he has adroitly raised his stake in BSkyB from zero to nearly 25 per cent, igniting a battle for control of Europe's leading pay-TV company and, at the same time, positioning himself as a dominant player in the continent's digital pay-TV and communications market.

"Messier is a master at chess," says one European securities analyst. "In my view he is going to break Murdoch. Murdoch can kiss goodbye to [the idea of] giving the jewels in the crown of his broadcasting empire to his kids."

Whether Mr Messier can actually wrest control of BSkyB from Mr Murdoch remains to be seen, and could be complicated by regulatory concerns. But even the prospect is an about-face from the French executive's stance on BSkyB a few months ago. Earlier this year Mr Murdoch had initiated talks with the French pay-TV giant Canal Plus about a merger with BSkyB. These soon fell apart when Canal's leading shareholder, Vivendi, insisted on the French having management control of any merged entity. Mr Murdoch had barely caught his breath from those talks before Mr Messier was suddenly pulling up several chairs in BSkyB's board room.

So how did Mr Messier do it? First, on 7 June, using Vivendi stock, he announced the purchase of the French film production company Pathe, which owned a 17 per cent stake in BSkyB. As part of the deal, Mr Messier then sold all of Pathe's assets back to its owners for cash, all that is except for the stake in BSkyB and Pathe's 20 per cent stake in Canalsatellite, Canal Plus' French digital-television service.

A few weeks later, Mr Messier purchased 7.5 per cent in BSkyB from two other minority shareholders, Pearson and Granada, and raised his holding in Canal Plus to 49 per cent. On the same day he indicated that that he was looking for a buyer for 9 per cent of that Canal Plus stake. "He comes up with innovative solutions to problems. In the Pathe case, he didn't pay any cash for the pay-TV stakes and ended up getting some cash back from the selling to shareholders," remarked one analyst. "Then he pays cash for the other BSkyB stakes and puts up for sale a stake in Canal Plus to cover the cost. It seems anything he does turns to his advantage."

The whole episode is an example of how Mr Messier carefully constructs deals to get what he wants. When he joined the 150-year-old French utility Compagnie Generale des Eaux in 1994, Mr Messier made clear his ambition to rise to be chairman. Some thought he might be shooting too high, too fast, despite his credentials. In 1988 he had been an advisor to French Prime Minister Edouard Balladur and a couple of years later he was a top executive at investment bank Lazard Freres.

But was he ready to be chairman of France's biggest private sector employer with 1998 turnover of 31.7bn euros (pounds 21bn)? Despite the critics, by June 1996 Mr Messier had pushed aside his predecessor, the man who had originally brought him into Vivendi, Guy Dejouany, to take the top job. Mr Messier is polite and charismatic but those who know him say he is also ruthlessly determined. "There is something about Messier," says a close observer. "He has an ability to mesmerise people. He is all the more dangerous because he looks like a teddy bear."

Mr Messier has breathed new life into the venerable and stodgy water company. In the past three years he has disposed of more than Fr100bn (pounds 10.4bn) of underperforming assets. He has sold off the property holdings, advertising business, hotels, catering, car-park, travel and tourism activities. And as part of the process he ditched the company's boring name in favour of Vivendi, gained control of French pay-TV giant Canal Plus, built up a successful alternative to France Telecom called Cegetel (operator of the country's second largest mobile phone firm SFR as well as a fixed- telephone network), and grew the core water and waste businesses beyond France.

Cash flow and earnings have soared, and debt has plunged to 83 per cent of equity from more than 150 per cent in 1995. Sales have grown from Fr166bn in 1996 to more than Fr200bn last year. The stock has trebled in price in the past three years.

But this spring the shine seemed to be coming off Mr Messier. Vivendi's stock price fell amid concern that the company was missing out on all the communications consolidation happening in Europe. A $6.2bn (pounds 3.8bn) acquisition of US Filter in April made Vivendi the world's largest water company, bigger even than the French firm's fierce rival Suez Lyonnaise des Eaux. But the deal also increased Vivendi's debt and included a jumbo 2.85bn euro (pounds 1.9bn) convertible bond issue.

While Olivetti was fighting for control of Telecom Italia, and Mannesmann and Vodafone consolidated their respective European footprints in mobile telecommunications, rumbles were heard among some that Mr Messier had lost his way and was favouring the slower-growing utility businesses over the red-hot communications sector.

The problem is that Mr Messier has started to shift from a restructuring mode to the acquisition trail, while at the same time pursuing a two-track strategy of growing both the utility division and the communications side. But investors attracted to media and telecoms will never like water deals and some wonder if Vivendi's balance sheet is strong enough to support aggressive acquisitions on all fronts.

Meanwhile, Mr Messier is busy. Vivendi has made a non-binding bid for the UK's fourth-largest mobile phone company One-2-One, and for a stake being sold by Vodafone in the German mobile phone operator E-Plus. Recently the company bought a stake in Era GSM, Poland's leading digital mobile phone provider, which has one million subscribers and an estimated 40 per cent market share. Canal Plus already runs a digital pay-TV service in Poland. "We want to develop on a European basis multimedia services to offer services to whatever device you use, PC screen, mobile phone screen or a TV screen," says Mr Messier.

Vivendi needs what one analyst has called a "transforming acquisition" in the communications sector, one that will enlarge its reach beyond France and into the major European markets of Germany and the UK. Mr Messier clearly has his sights set on the fast-growing media businesses. Canal Plus has 13 million paying subscribers for its television services in nearly a dozen countries and is moving into interactive services. Late last year Vivendi's publishing company Havas purchased Cendant Software in the US, which made it one of the biggest interactive educational and games publishing companies in the European market. And an agreement between AOL, Germany's Bertelsmann, Canal Plus, and Cegetel to pool their Internet activities in France to compete with France Telecom was signed last year.

A new 50/50 joint venture called @Viso with Japan's Softbank was finalised a few weeks ago with the goal of looking for European Internet investment opportunities. Ironically, the deal coincided with a similar one between Softbank and Rupert Murdoch's News Corp, that is headed by former BSkyB CEO Mark Booth. Despite Mr Messier's recent moves on BSkyB (or maybe because of them) both he and Mr Murdoch say they see room for co-operation between the two companies especially in the Internet space. "I am pragmatic, as is Rupert Murdoch, and I am basically industrially focused," says Mr Messier. "I think we have lots of precise projects to discuss together in several fields, including the Internet and interactive services field."

Mr Messier, who has recently sold the Libertel hotel group and put the property assets on the auction block, says the idea is to pare down Vivendi into two strategic businesses: utilities and communications. Mr Messier has rigorously defended his $6.2bn US Filter acquisition which in 1999 will increase sales at Vivendi's utilities division to around 20bn euros. The addition of US Filter should help Vivendi's net profit rise 20 per cent this year, double what Mr Messier predicted a year ago. And the purchase puts the group in a strong position to take advantage of opportunities in the further privatisation of the $300bn-a-year US water business.

"Clearly Messier is trying to position himself to fund the growth of media through the utilities businesses," says a London-based analyst. "A key player in European telecoms and media needs a lot of investment and water is a cash-generative business."

Mr Messier's longer-term plan is to spin off the utilities unit in the next three years, meaning not only the water supply companies but waste management, energy and transport.

He said early in his tenure at Vivendi that the great French weakness is "a lack of focus and inadequate financial power to stand up to foreign corporations that are stronger, faster-growing and far more internationally- minded". He has since honed the focus of one of France's most unwieldy of companies, grown its financial clout and expanded outside of France.

Smelling too much success and perhaps a whiff of pomposity, the French press has reacted cheekily. They first changed Messier's usual nickname, J2M (the J for Jean and the two Ms for Marie and Messier), to J4M, standing for Jean-Marie Messier moi-meme (myself). Most recently, it is J6M, adding on "maitre du monde" (master of the world). For a man who has achieved so much in the media, he probably takes this as a complement which, for once, will not surprise his rivals.

Fact File

Market Capitalisation: 213bn euros (pounds 141bn)

Turnover: 31.7bn euros (pounds 21bn) in 1998

Pre-tax Profit: 1.4bn euros (pounds 925m)

Main business: Utilities provide the core, and include water systems, energy, waste management and transport (15.4bn euros of turnover). Owns Onyx waste management (sewers, dustcarts), and Superior Services, fourth biggest US solid waste company.

Communications represents the new face of Vivendi and comprises publishing, multimedia and telecoms (6bn euros turnover). Owns pay TV Canal Plus subsidiary, and Canalsatellite, CD-Roms and games company, Cendant, and publishes magazines and educational titles. The property and construction division, (10.3bn euros turnover) includes Societe Generale d'Enterprises.

Key executives: Jean-Marie Messier, CEO and Chairman; Eric Licoys, COO Vivendi and CEO of Havas; Henri Proglio, VP Vivendi Utilities; Philippe Germond, VP Vivendi Communications.

Employees: 260,000 employees (worldwide)

From Sewage To Cyberspace

1853: Compagnie Generale des Eaux is founded to provide water in Paris, Lyon, Venice and Constantinople

1905: The company discovers ozonisation treatment of water

1967: Expands into waste and energy businesses

1972: Becomes a major property developer in La Defense, outside Paris

1980: Establishes itself as the biggest private energy company in France and begins transport business

1983: Canal Plus, the pay-TV giant, is born; CGE owns 15 per cent of it

1987: Launch of the first French alternative telecom operator, SFR mobile phone

1988: Buys Societe Generale d'Enterprises, the construction company

1990: Total sales cross the threshold of Fr100bn. One quarter of turnover is now from outside France

1994: Becomes the European leader in waste management business.

1996: Jean-Marie Messier becomes the ninth chairman and CEO of CGE

1998: Renamed Vivendi, CGE buys control of the advertising company Havas and re-focuses it on publishing and multimedia. Cegetel, the fixed and mobile phone group (including SFR), is re-organised

1999: Expansion into the US with purchases of multimedia publisher Cendant and US Filter, a water treatment and equipment company