It seems like just yesterday. Le tout France was lauding them as Gallic superheroes, conquerors of the world for their Paris-based groups: Vivendi Universal's (V) Jean-Marie Messier, LVMH's (LVMHY) Bernard Arnault, France Telecom's (FTE) Michel Bon, and Gucci-to-Samsonite boss Francois Pinault of Pinault-Printemps-Redoute. Thanks to the well-covered exploits of these CEOs, the French private sector was finally earning accolades, not the opprobrium it had endured in France for decades. The men were viewed as the preeminent icons of modern France, supplanting Gauloise-smoking intellectuals and silver-tongued politicians.
Alas, the higher they rise, the harder they fall. And boy, have they fallen. Messier, architect of France's most aggressive American campaign since General Lafayette, announced the largest loss in French corporate history in early March on the back of a record $14 billion write-down. France Telecom's Bon, laboring under $55 billion in debt, is now set to outdo even that record. Luxury-goods purveyor Arnault has been busy issuing profit warnings--as has archrival Pinault, who is spending billions on Gucci (GUC). Since the beginning of May, 2001, France Telecom's share price has dropped 61%, while Vivendi's has dropped 41% and Pinault-Printemps' 32%. Even LVMH, whose luxury line is supposed to be recession-proof, fell 11%.
Sure, vaporizing valuations and balance-sheet carnage are hitting many parts of Corporate Europe these days--just look at Deutsche Telekom (DT), Swissair, ABB (ABB), and others. But more than any other country in Europe, France worked overtime to put these CEOs on pedestals. "The tradition of creating national champions was strong in France, but now you had people who seemed to become global champions," says Jean-Marc Vittori, editor-in-chief of business monthly L'Expansion.
Of course, savvy players like Messier, Bon, Arnault, and Pinault are far from finished. And business is not yet a dirty word again. The danger, though, is that the woes of these CEOs will hurt the cause of the free market in France. Already there's widespread grumbling that the progressive privatization of France Telecom was a mistake.
If Messier, Bon, Arnault, and Pinault have one thing in common, it was a kind of imperial overreach. Their front-page acquisitions--of Seagram's entertainment businesses, British mobile operator Orange, Donna Karan, or Gucci--offered the French their latest assurance that France remained a global economic and political power. The irony is that Messier and his fellow CEOs were branching out precisely because they correctly recognized that France was too small a market for their ambitions. But in their eagerness, they overpaid for many of their global land grabs. Arnault recently sold off auction house Philips at a loss after having pumped in more than $100 million. Michel Bon spent $5.5 billion for 25% of British cable operator NTL Inc. in mid-1999, a stake the company now admits is virtually worthless.
Just like their counterparts at Nortel Networks Corp. (NT) or WorldCom Inc. (WCOM), these CEOs couldn't resist the lure of the big deal. It all seemed to work beautifully as long as investors on both sides of the Atlantic were in the feverish grip of a "buyer's panic." But when the music stopped, the French seemed to be more off their guard than most. They were especially unready for the merciless financial analysis that is typical of this post-Enron Corp., post-bubble era. Why? One reason may be that rewarding shareholders is not an ingrained tradition in France--even if this is beginning to change.
Still, investors would probably be unwise to unload Vivendi Universal, LVMH, Pinault-Printemps, and France Telecom just now. The CEOs of these companies are nothing if not quick studies, and they are showing every sign of getting religion fast. Bon is moving to rein in spending. After selling the auction business, Arnault is preparing to sell off cosmetics chain Sephora.
It's important to remember, too, that France has its share of relatively unsung corporate success stories. L'Oreal Group, under Lindsay Owen-Jones, has quietly become a global powerhouse in cosmetics. Renault's Carlos Ghosn is restructuring Japanese auto maker Nissan (NSANY). TotalFinaElf's Thierry Desmarest has patiently built up the world's third-largest energy company. France Inc. will continue to have business heroes. They just may not be the ones that come most readily to mind. By John Rossant