Chapter III - The privatization of CGE
Que chacun fasse donc le métier qu’il sait faire!
(That every man perform the job that he knows how to do!)
Aristophanes, The Wasps
The decision to privatize announced January 8, 1987 crowned a long and intense effort which began internally in August 1986 and advanced quickly, in close collaboration with officials of the Ministry of Finance, the Treasury, and the minister's office, on the faith of the commitment made at the end of July, as indicated earlier.
It quickly became evident that the privatization of CGE, which would follow two other major transactions—involving Saint-Gobain and Paribas—would take on a greater importance. That was, of course, because of the size of the CGE group (greatly enlarged by the acquisition of ITT’s telecommunications subsidiaries); because of the need to increase shareholders equity to finance the acquisition; and, last, because of a technical problem—the presence on CGE's balance sheet of some publicly-listed non-voting convertible preferred shares which it seemed preferable to remove from the public market before the return of CGE’s shares to that market.
These preferred shares require a few technical comments. They had been issued in two tranches: One million shares at 1,000 francs each in October of 1983; and 1,100,000 shares at 1,430 francs each in February of 1986. The two issuances, for which the due dates were identical (October 10), were considered to be comparable. They had provided 2.573 billion francs of shareholders equity to CGE. These shares were of a very original nature and were non-refundable, except in case of CGE’s liquidation (in which case the reimbursement would be at par value—that is, at 1,000 francs per share). However, the issuing contract gave CGE the right to buy them back on the stock market or by way of public offer, or to reimburse them in full on October 10, 1998 at 5,000 francs. The shares entitled the holder to preferential payment consisting of two elements: The first equal to 34% of the bond rate and the second, a variable rate fixed at the beginning at 3.4% but indexed to the annual evolution of “consolidated cash flow." That second part, which was not capped, increased rapidly as a result of structural changes within the group. Indeed, it had increased by a factor of 2.2 from 1982 to 1986, and an extrapolation from that rate of increase made us concerned that the payments required for the shares could reach 40% in 1998 as opposed to 10% in 1986.
The price of these shares (2,600 francs) reflected of course their preferred character.
It became apparent that these hybrid securities with preferential payment rights could not remain listed on the stock market in competition with CGE common stock, particularly in light of the expected rapid increase in their rate of remuneration in the years ahead. We hoped, therefore, to offer their holders the opportunity to exchange them for shares of CGE common stock. The exchange had to be on a basis that would not be prejudicial to the holders and would reflect market expectations concerning their future remuneration. After a number of studies by our investment bankers, it was decided to suspend trading on March 9, 1987, as soon as fluctuations in the price raised fears of insider trading. The exchange offer turned out to be a great success.
This transaction to clear up the market for CGE’s shares provided fodder for certain politicians on the left who were criticizing CGE’s privatization. It should be kept it mind that the issuance of these preferred shares brought the company 2.573 billion francs worth of stockholders equity between 1982 and 1986 but had penalized the return from the sale of CGE shares on the stock market by approximately 6 billion francs. Yet this inadequate return didn't result from the privatization of CGE but rather from the political blockage that prevented the nationalized companies from satisfying their capital requirements by simply issuing on the market common stock, convertible bonds, etc.
The second technical difficulty arising from the privatization of CGE arose because of the presence on the stock market of a CGE-controlled subsidiary, Alcatel SA. Alcatel SA was the new name given to CIT Alcatel (a publicly-listed company) after CIT Alcatel transferred all its assets to Alcatel NV on January 1, 1987 in exchange for Alcatel NV stock. After that transfer the only asset of CIT Alcatel (now called Alcatel SA) was the stock of Alcatel NV. That indirect quotation of the new Alcatel NV, through Alcatel SA, appeared both premature and too unsuitable for Alcatel NV, a company which was second worldwide in telecommunications, promising certainly to have a bright future but still newly created with an untested organization which had yet to prove itself.
We had hoped to offer Alcatel SA’s stockholders the possibility of exchanging their shares for shares of CGE stock, which would enable them to become direct stockholders again of an industrial group, which is what they were when CIT Alcatel existed. Despite our efforts, we were unable to convince the government. That proposal was set aside (only for me to pick it up again the following year, but not without several difficulties in execution, which will be addressed later).
Also left to be organized and carried out was the new equity issue. The simplest solution was chosen. The evening before the public offering CGE proceeded with a capital increase in two tranches. The first tranche was subscribed completely by the government, which offered the newly-acquired shares for sale the next day, together with the shares it already owned. The second tranche was subscribed by banks and those shares increased the offer in the foreign markets.
But the finalization of the financial arrangements, as delicate as they were, represented only one small aspect of the privatization process, of which the three most important components were: To prepare for the presentation of the group’s policies and financial statements; to seek out and entice stockholders; and to facilitate employee access to company stock, which was a priority for me.
Finally, and not the least challenging, the market value of the CGE group had to be evaluated and the stock price established for the shares to be offered to the public. But this task fell upon the government—specifically, the Privatization Commission and the Ministry of Finance. We did our studies and our investment bankers did theirs as well. We gave our advice but the decision belonged to the player who was, to borrow the expression of Mr. Madelin, “selling the apartment.”
Preparation of the financial statements for the fiscal year 1986 was routine for the most part, but nonetheless presented a peculiar aspect related to the acquisition of Roxane on December 30,1986 and the fact that it was not accounted for on a retroactive basis. As a result, the income statement for 1986 only reflected the results for CGE's activities but the year-end balance sheet included the assets acquired from ITT. To facilitate understanding the impact of that transaction on the financial accounts, the December 31, 1986 balance sheet was presented using two methods: The first accounted for the subsidiaries acquired from ITT by the equity method in order to reflect the 1986 management results; the second accounted for these same subsidiaries by pooling of interests in order to show the new make-up of the group. In addition, these accounts reflected a harmonization of the different methods used by CGE and ITT. It was principally a question of evaluation of work in progress, reserves for retirement and occurrence of the event triggering the billing of long-term contracts (progress payments and no longer payment on final delivery, the approach traditionally used by CGE).
Consolidated sales were 80.9 billion francs, compared with 71.9 billion in 1985, the 12.5% increase resulting essentially from external growth. But it was necessary, in light of the changes brought about by the ITT acquisition, also to give, along with the presentation of the company’s results, some indications with respect to the next fiscal year. We anticipated that sales would be 130 billion francs.
Orders were 83.7 billion francs in 1986, a modest increase (up 1.7%) over the preceding fiscal year (confirming the difficulties experienced in the energy and telecommunications markets) and we were predicting orders of 134 billion francs for 1987. But the division of sales—64% for France and 36% for international in 1986—was going to change radically. In 1987 sales outside of France were expected to increase significantly, representing 60% of total sales, 45% from production by foreign companies and 15% from exports by French subsidiaries. It was a true turning point for CGE (soon to celebrate its 100th anniversary) which, from this point forward, took on an international dimension and influence. The number of employees would increase from 149,000 at the end of 1986 to 240,000, 40% of which would be non-French located in more than 100 countries around the world.
Consolidated results for the group of 1.721 billion francs for 1986 (up 45% compared with 1985) represented 2.1% of sales. CGE’s share was only 1.159 billion francs—that is, 67% of the total, reflecting the important role of minority interests in the group, which could also be determined by an examination of the balance sheet. With respect to stockholders equity, out of a total of 21.6 billion francs, CGE’s portion of 11 billion represented only 51%.
The balance sheet also showed a high level of indebtedness, which resulted from the acquisition of Roxane. At the end of 1985, debt was 12.4 billion francs for 14 billion of total stockholders equity (9.9 for CGE). At the end of 1986 the debt more than doubled, to 26.3 billion francs, surpassing stockholders equity (21.6 billion francs, of which 11 billion for CGE). But this disequilibrium would be corrected by a capital increase.
The balance sheet also indicated a substantial increase in reserves for risks and liabilities, which went from 14.5 billion francs to 19 billion francs. That increase resulted primarily from the consequences of integration of the activities taken over from ITT for which the reserves previously existing in ITT’s financial accounts were increased by 7.2 billion francs—3.8 billion for anticipated restructurings, 2 billion to supplement coverage of retirement obligations, 0.9 billion francs for business risks, and 0.5 billion francs for changing trademarks. The reader will note that, concerning the activities of CGE, there was no change in the way the accounts were kept from the practices of my predecessor at the head of CGE and that, in particular, no precautionary reserve was established. The reader will observe later that this reasonable and standard approach wasn’t the one that prevailed when I was forced to resign from my functions. My successor decided to incur, for the 1995 fiscal year, a 25 billion franc charge as an exceptional reserve that would subsequently prove to have been arbitrary.
The presentation of the results, activities, and strategies of CGE to the financial analysts and potential investors underlined the general direction and policies of the group—the focusing of business activities and development in services, internationalisation, and technological independence.
The group had activities in three principal areas: Energy, which represented 35.8% of sales in 1986; telecommunications which represented 32.1 % (or 45.5% if telecommunications and energy cables are included); and 18.7% contracting, services and other various activities. But the telecommunications part would increase substantially in 1987 (to at least double) and would represent over 60% of the group's total sales.
I also announced that the group wanted to develop its presence in the services area—services linked to the commercial activities of the group (maintenance, repair and installation), as well as those connected with the development of telecommunications networks, particularly those resulting from the general use of digital networks and the anticipated deregulation. It was largely a new field for the group, but I indicated it should constitute a third leg, alongside energy and telecommunications, to help ensure stability and the development of our businesses, as each of the sectors had its own business cycle.
The technological independence and internationalisation objectives were related. The trend toward industrial concentration to which CGE had just made a major contribution could only become more and more pronounced and continue to develop. In high technology fields, including telecommunications of course, but also in the production and transmission of energy, the only players that would survive would be those capable of controlling their technology and having sufficient sales to finance the significant expenditures for research and development necessary to keep their technology in the forefront. For that, it was necessary to be of sufficient size, something which could only be attained—for European companies, at least—by becoming involved internationally. Without delay and, in fact, in order to prepare for the opening of national markets, it was necessary to begin to establish operations in the principal markets and in that way acquire the size necessary to have an impact on an international scale. CGE had spent 5.5 billion francs in research and development in 1986 and anticipated, thanks to the ITT acquisition, to increase its research and development expenses to 10 billion francs in 1987.
We presented this message to the financial community in Paris, but also, once the conditions of the privatization become known, in Frankfurt, Geneva, Zurich, London and Brussels where, each time, a hundred or more bankers, investors, and fund managers attended a presentation and discussion session, followed by a reception. We undertook our “road show,” which had become common practice for large companies seeking access to public financing. At the time this was something new, including for CGE, even though it had long been a listed company, except for the last four years during which it had been nationalized.
Privatization was also to be the occasion for changing employees’ attitudes with respect to their company. The desire of the government that the company’s stock be held by members of the general public would provide fertile ground for this process. I completely shared that goal. Of course, we had to be realistic, but why not try to realize the old dream of associating capital and labor? Certain unions were not hostile to the idea and especially many salaried employees, very attached to their company, were favorable to it. The government had established favorable conditions for the sale of stock to the employees. We added deferred payment terms.
Ten percent of the shares sold by the government were reserved for current and former employees of the group. Employees of subsidiaries in which CGE held more than 50% of their stock were entitled to participate. The employee could buy the stock directly (through a financial intermediary) and get a 5% discount off the public offering price (the OPV) with no obligation to continue to hold the stock. On the other hand, if the employee agreed to hold the stock for three years he could get a 20% discount and a 36-month extended payment schedule for two-thirds of the purchase price.
The employee could also buy shares through an investment fund (FCP), “CGE Privatization,” which invested exclusively in CGE shares and which was created especially for this purpose. In this case the employee agreed to keep his shares for five years and in return got the same 20% discount and 36-month extended payment terms mentioned above. However, in this case his initial payment was reduced by an additional 10%, which was paid by the company.
In all cases, the employee received one free share for each share purchased and held for four years. There was a limit on the amount that each employee could invest. In the case of purchases through the investment fund (FCP), the employee's contribution (including the part paid on his behalf by the company) could not exceed a quarter of his gross salary; in the case where the shares were held directly, the limit was 577,000 francs for the total investment.
But an element peculiar to the privatization of CGE was added. The law concerning democratisation of the public sector obliged nationalized companies to have employee-elected board members. The elected representatives sat on the board of directors with the same deliberation and voting powers as the directors elected by the shareholders but, unlike the other directors, they were not personally liable.
This hybrid system would disappear with privatization. The privatization regulations had provided for the possibility of directors elected by the employees, but this measure would have little meaning if it was limited to the employees of the top holding company.
At CGE, and after many discussions with the government, we adapted an original approach: CGE’s by-laws would provide for the chairman to submit for election at the annual shareholders meeting, two candidates out of a list of four selected by the FCP investment fund. The board of that fund was elected by direct voting of its shareholders in proportion to the number of shares held. In this way, CGE’s board of directors would include two employee directors, but whose powers and responsibilities would be completely identical to those of the other board members inasmuch as they were elected at the general meeting of stockholders and, therefore, empowered to act in the interest of all shareholders. However, the quality of the board's deliberations was improved because of the knowledge that these two board members had of the inner workings of the group. The system functioned to the satisfaction of all the parties.
To heighten employee awareness regarding the privatization and the offer being made for them to become shareholders of their company, a large meeting was held on April 13, 1987, bringing together 4,000 managers at the “Palais des Congrès” convention facility located in Paris. This was another first in the group, which was opening itself up to modern communication.
In this huge room, surrounded by the principal headquarters and subsidiary managers, I had to respond to questions from two well-known journalists and, despite myself, play the leading role in this enormous presentation. This was another first for me and I had to learn (who knows if I succeeded) to talk in a manner alternating between ceremonial solemnity and casual friendliness in order to convince or entice, all the while having in front of me, beyond the bright lights, a huge black mass into which it was impossible to maintain the slightest eye contact which would have facilitated a more natural communication. No, I had to speak into this obscurity pierced only by a few security lights and some red signal lights indicating that the TV cameras were filming me. When pushed by curiosity to see what the audience was seeing, I would glance towards my own image on the giant-sized, overhead screen; but even those eyes were looking beyond the scene. Discouraged, I would return rapidly to my monologue in front of the obscurity.
During this gathering the head of communications presented our advertising campaign, which was designed to heighten public awareness of the privatization. The campaign, with the theme “l’Esprit de Conquête” (“Conquering Spirit”), was designed to illustrate the creativity of CGE, an industrial group about to celebrate its 100-year anniversary, by highlighting its flag-ship products—for example, the TGV, Minitel, earth stations, and undersea cables. Inspired by the most famous of the Jules Verne novels, the campaign included brief sketches or presentations of 20 Leagues Beneath the Sea, The Mysterious Island or Around the World in 40 Seconds.
The cost (64 million francs) and the contents of that advertising campaign were decided on in agreement with the Minister of Finance and his office, which insisted on placing their stamp of approval on these communication endeavors.
Everyone joined forces. We had to hit hard because CGE was not well-known to the public and had the unjustified reputation of representing hidden influence and undisclosed power. That reputation had to be radically corrected at this time when we were trying to entice millions of potential stockholders. It was necessary, apparently, that the chairman be seen. One magazine, supported by our internal communications people, insisted that I be photographed in industrial settings which would stimulate the imagination. They took a series of photographs of me in the metal framework of the Eiffel Tower and others between the teeth of a huge circuit breaker displayed at the Paris Museum of Modern Art in front of a huge fresco that Raoul Dufy consecrated to the “fée électricité” (electricity fairy).
That photograph was published and had a certain success. Years later, after my forced departure from the group, it inspired a touching letter from Mr. Robert Deschamps, a former president of one of the a group's subsidiaries, Delle Alsthom (located at Lyon Villeurbanne), long since retired after a career of nearly 50 years in the group. After a message warmly expressing his sympathy, he told me the story behind this circuit breaker, explaining that he was writing on the day before his 98th birthday and at the urging of his family:
"In October of 1936, the Ateliers de Construction Electrique Delle had to build, at the insistence of the Compagnie Parisienne de Distribution d’Electricité (CPDE), a 500,000 volt circuit breaker (at the time, the highest tension in use was 220,000 volts) which was to be presented and displayed in front of the Raoul Dufy canvas at the Exposition Universelle scheduled for May 1, 1937 in Paris.
"The delivery date was respected by ACE Delle, all the more since the official inauguration by President Lebrun was put off to May 24, 1937, when he was taking over in the rubble which was the after-effect of the disorder in the French economy in the middle of 1936 after the Popular Front took over…
"What was the destiny of this circuit breaker at the end of the exposition—without the least possible use? Several months before the declaration of war in September 1939, it was taken to the United States to be presented at an exposition of electrical materials in New York.… and, in 1945.… I didn’t have to preoccupy myself any more with the outcome of this circuit breaker which—without the possibility of being used—would in all likelihood end up in a junkyard in the United States, fading from memory and into the oblivion for which it was condemned from the start as a result of its lack of utility...
"On the other hand, the fresco of Raoul Dufy, preserved by the CPDE-EDF and presented around 1964 to the Museum of Modern Art of the City of Paris.… is still on exhibit there. That exhibit was even accompanied.… by an ancient circuit breaker (‘orthojoncteur’) of Delle Alsthom, with a more standard tension (90,000 volts—that is, 1/5 of the one exhibited in 1937), in front of which Pierre Suard, at the time chairman of CGE, appeared for photographs, sportingly marking the heritage that he was glad to assume in memory of the gracious contribution made by his group to that 1937 exposition."
Just 50 years after the renowned Exposition Universelle de Paris, we didn't imagine, in 1987, to be illustrating so symbolically by that photograph the long industrial history of CGE, which privatization would permit us to pursue and amplify.
At the end of April 1987 the time had come to finalize the terms of the privatization.
We decided first to split the existing shares in order to have a sufficient number to offer. Five new shares were created for each two previously existing (giving them a 40 franc par value in lieu of 100). After that transaction CGE’s capital was made up of 28.2 million shares, of which 24.6 million were held by the government and 3.6 million by the banks (themselves nationalized), principally Société Générale, Crédit Lyonnais and BNP.
The Minister of Finance fixed the price at 290 francs a share, the capital increase at 6.3 billion francs, and the conditions of the public exchange offering for the non-voting convertible preferred shares at 10 shares for 1.
By his decision, he valued CGE, after the capital increase and with a 100% conversion for the non-voting convertible preferred shares, at 20.6 billion francs, a figure to be compared with the minimum value fixed by the Privatization Commission (18 billion francs) or the net consolidated asset value of the group (17.3 billion francs), or even with the same asset value after correction for the market capitalization of the listed shares of subsidiaries (net of capital gains tax), which would be 19.7 billion francs. The firm of Fauchier-Magnan, on the basis of an international stock market comparison, came out with an overall value of 24.6 billion francs. Guay-Massouaud, using a different method, estimated the value of CGE at 23.7 billion francs.
The price of 290 francs fixed by the government corresponded with a reasonable valuation, especially in a less favorable stock market situation. In October the stock market experienced a mini-crash; and in the weeks that followed the share price even dropped below 200 francs. The initial valuation of CGE, however, quickly became the object of partisan criticism. I will return to that issue.
The capital increase, issued in two tranches, created 21.8 million new shares, 12.7 for the first tranche, subscribed solely by the government which offered them for sale the following day, and 9.1 million for the second tranche, subscribed solely by banks and intended for the international market. The total number of shares was, thus, set at 50 million.
The public offering was for 39.6 million shares (that is, 11.5 billion francs). Out of the total of 50 million shares, 6.4 million belonged to the banks after the capital increase (they were not put on sale in the public offering) and the government kept 4 million shares to be distributed free-of-charge to small holders pursuant to the general arrangements that the government had established, and also to the employees, as explained earlier. These 39.6 million shares were offered in the proportion of at least 70% (that is, 27.7 million) to the French general public, 10% to employees (4 million) and, at the most, 20% to foreigners.
Finally, if all of the non-voting convertible preferred shares were converted, there would be an additional 21 million shares created.
At the end of these transactions CGE's capital would consist of 71 million shares, 28.2 million pre-existing, 21.8 million resulting from the capital increase, and 21 million from the conversion of non-voting convertible preferred shares. The total capitalization was 20.6 billion francs at 290 francs a share.
The public offering on the French market, as well as the international market, began on May 11, 1987 and ended on May 23. The public exchange offering for the non-voting convertible preferred shares started at the same time and ended on June 19.
The first quotation of CGE shares took place on June 3. The offering for the convertible preferred shares (having been suspended since March 9) commenced the same day. This left a 16 day period when both types of securities were offered, thus giving the preferred shareholders access to the same information in fixing the price of the preferred shares.
CGE’s privatization was met with great success, despite the technical correction which took place in the financial markets during the subscription period. Two million four hundred thousand individuals became CGE shareholders, not including the employees, 45% more than for Saint-Gobain, the first industrial company to be privatized, and 20 times more than the number of CGE shareholders before the nationalization. Demands, which largely exceeded the offer, were only partially met—35% for individuals and 3% for institutional investors.
The international tranche also experienced the greatest success level of the privatization transactions completed up to that time—demand exceeded the offer by 15 times. Ninety-eight percent of the preferred shares were converted.
Among the employees, the success was tremendous. CGE employed at the time 240,000 employees, of which 126,000 were located in France and 114,000 abroad (91,000 came from ITT subsidiaries). In all, 101,500 employees and retirees became stockholders—one out of every two employees in France and one out of five outside of France—an impressive result when bearing in mind that, for legal reasons, the public offering was not possible in certain countries (like the United States, for example) and that 80% of the employees located outside of France had only joined CGE five months before. In France, 85% of the managers, 30% of the salaried employees, and 60% of the workers became shareholders. In all, the personnel held 5.7% of the capital, of which 3.4% was obtained through the investment fund (FCP), which, for legal reasons, was only accessible to French residents. Thus, the FCP became the second most important shareholder of the group, after Société Générale (5.8%).
The large diffusion of stock ownership within the group reinforced the solidarity of its employees. It was, for the huge majority of shareholder-employees, the sole connection between them and their colleagues in other companies within the group. Until then, each felt a connection only with his or her own company. From now on, the legitimacy would progressively open up and be extended. I hoped for that evolution in order to reinforce unity within the group and its industrial image. This was the beginning of a policy that would be constantly reinforced in the years to come. There would always be shareholder-employees who would try to discredit the company, especially among certain labor unions which saw this as the classic structure for the battle between classes. Attitudes had to be changed—which calls to mind a telling anecdote.
A representative of the CGT union that I knew well from the time when I managed Les Câbles de Lyon, very representative of the well-balanced, professional manager, convinced of the correctness of his beliefs, had to admit that, weary from responding every day to repeated questions from his colleagues at the plant, he had decided to post the price of CGE's shares on a plaque on his workbench every morning.
Technically, the privatization was completed on June 3, 1987, the day of the first quotation of CGE’s shares. That day I went with Ambroise Roux, who had presided over the group before its nationalization five years earlier, to be present for the fixing of the starting price, which was fixed at 323 francs. While the specialists were comparing their assessments and we were waiting for the verdict of the stock market, I thought about the depth of the changes brought about by the end of nationalization and the magnitude of the responsibilities that we were taking on from that point forward, but also of the great liberty of action that we were getting back. Neither my predecessor nor I was insensitive to the solemnity of these moments.
We were worlds away from savage capitalism and a form of globalisation that is crushing to mankind.
And I think that many other stockholders were rejoicing with us. CGE’s loyal shareholders had great confidence in the company. I received a number of letters from former stockholders who were very unhappy with the nationalization of the company in 1982. One of them, for example, Mr. André Collet of Granville, wrote me on January 28, 1987, indicating that he was 92 years old:
"After my return from the war of 1914-1918, I bought an electricity shop and until my retirement—that is, during several decades—I remained a loyal customer of your company. Each time that I could, I bought a share in CGE up until the day, in 1982, when the law required Société Générale to replace my shares with ‘CNI’ (1982).… I would be very grateful if you would tell me … what to do to get them back because, for me, CGE was at the pinnacle of big business..."
He added that he was the most senior member of the Amicale des Anciens Elèves Pilotes de la Flotte française and sent me a copy of the Sailor’s Prayer that he had written in 1986 in praise of Our Lady of Cap-Lihou, In Looking at the Stars, which ended with the following stanza:
"When in the future my course deviates"
"My soul and my heart in peace, but still on guard,"
"I hope to sail and believe in a long afterlife"
"In a world invisible beyond the sun."
The heading noted: “A monsieur le président de la CGE. Puisse-t-elle combler ses vœux. ” (To Mr. Chairman of CGE. May she fulfill your wishes.)
The privatization of CGE, unquestionably perfectly successful despite its size (it was, at the time, the largest transaction ever concluded on the stock market), would nevertheless quickly incite criticisms from certain Socialist leaders. In a May 14 communiqué Pierre Bérégovoy denounced “another example of waste of public property” which in his eyes was what the placing of CGE on the market represented. “The price received by the government was underestimated by about 6 billion francs in comparison with the real value of the company;” and he added, “Il est grand temps que toute la lumière soit faite sur l’étrange dossier des privatisations” (It’s about time that light be shed on the bizarre handling of the privatizations.) Other leaders followed suit and broadened the criticisms to other privatizations, denouncing the “noyautage" of the capital of the privatized companies by a limited number of groups.
In reality, the Paris market was very limited. It was legitimate for the government to ensure that the companies which had just been privatized didn’t fall, before being able to acquire the necessary strength, under the control of other private groups, which could only have been foreign companies given the limited capitalization of the Paris market. So the government decided to sell, in a private sale (and at a slightly higher price than for the public offering), a certain number of the shares of the company to be privatized to a limited number of investors who would commit to retain the shares for a certain period of time. They were referred to as the "noyau dur" (solid core shareholders).
In the case of CGE it wasn’t necessary to resort to that procedure because, as explained earlier, a portion of the shares was in the hands of nationalized banks, rather than being held directly by the government.
Thus, it was possible to constitute a noyau stable (stable core) with a limited group of investors which, by direct purchases and market transactions involving shares not part of a public offering, held approximately 16% of the capital (Société Générale, Compagnie Générale des Eaux, UAP, Société de Banque Suisse, Société Générale de Belgique and Dumez). They had entered into an agreement in which each promised to retain at least 85% of its shares for three years and agreed for the remaining shares to grant a right of first refusal to the other members of the group if those shares were ever sold. That agreement was not publicized
The following year a controversy developed in the press concerning CGE’s “secret pact.” To cut short that campaign and with the agreement of the core group, CGE made the agreement public. The COB then indicated that such contracts (of which there were many in Paris) were perfectly legal and didn't have to be made public.
But that was only one aspect of the political campaign directed against CGE. The principal theme concerned the weak return for the government—5.9 billion francs, compared with the total value of 20.6 billion corresponding to the offer price of 290 francs a share. That argument disregards the particular nature of CGE’s privatization, as explained earlier. Out of the 71 million shares existing at the end of the process, of which the stock market value was 20.6 billion francs, the government only held 24.6 million shares. It had sold 20.6 in the public offering and distributed free-of-charge 4 million to small shareholders. The 46.4 million shares (71 – 24.6 = 46.4) belonged to the initial bank stockholders or had been acquired by subscription to the capital increase (21.8 million) and by the owners of the non-voting convertible preferred shares (21 million).
The nationalization of CGE hadn’t, in fact, been a bad deal for the government, which had acquired the company for 3.5 billion francs in 1982 and sold it at practically double that price, without having made any capital increases during that period, and all the while having received dividends.
The controversy over the regularity of CGE’s privatization, as well as of other companies, fed the political debate for several years. On June 10, 1988, I wrote to Mr. Bérégovoy’s chief of staff to remind him of the numbers that justified the proceeds received by the government at the time of the privatization. In the beginning of 1989 Minister Bérégovoy renewed the same criticism before the Finance Committee of the National Assembly. I wrote to him to point out the errors which he again made in his reasoning and reminded him that Alain Boublil, his chief of staff, had already been made aware of this seven months earlier.
Sometime later, Minister Bérégovoy summoned me to the Finance ministry. He indicated that he didn’t have anything particular to speak to me about but that he hoped simply to get to know me. It’s true that I had never met him. The atmosphere was relaxed and so I took advantage of the occasion to come back to the issue of CGE’s privatization. I reminded him of the letter I had written him on the subject, after the one I had written earlier to his chief of staff. His response took me off guard. He told me, in a very friendly tone, not to be concerned with that controversy, which was in no way directed at CGE or its chairman. He was familiar with the figures and knew the criticisms weren’t justified, but politically, they came off well. Thus, they would continue to play a part in the political debates because his target was his predecessor on the rue de Rivoli, a major political adversary. That day, I understood that the standards of the political world would always remain foreign to me.
It was also during this interview that the minister made a comment which shows the extent to which the political world differs, even if unconsciously, from the business world. Pierre Bérégovoy asked me my age, to which my response was “54.” He added that he was happy to see someone under 60 years old heading one of the big companies—it was, in his eyes, a measure of dynamism. Apparently, it didn’t occur to him to apply the same observation to the people seated around the table at meetings of the ministers, himself included!
We would again be required to respond to an inquiry from the COB regarding the circumstances surrounding the acquisition of shares by the solid core shareholders and then to appear before the investigating committee established by the National Assembly in 1989. Despite all these efforts, no formal complaint was ever upheld as to CGE’s privatization.
That was only fair because this difficult and important transaction was, in fact, prepared and carried out very professionally. It returned to CGE the liberty to act and gave it, in particular, the means to proceed with the creation of Alcatel NV, a major challenge to which I was going to have the opportunity to devote the majority of my time.
 Alumni association of student pilots of the French navy. (Translator's note)
 Mr. Bérégovoy would later become the Minister of Finance. (Translator’s note)
 A reference to the practice of creating a "noyau dur", as explained in the next paragraph. (Translator's note)
 The Commission des Opérations de Bourse (or COB) is thecommission regulating the French stock market. (Translator's note)
 The “rue de Rivoli” is the street in Paris on which, at the time, the Ministry of Finance was located. (Translator's note)