Can He Solve The Suez Crisis?

France's nastiest corporate fracas in years has been patched over--for the moment. Dissident directors at Compagnie de Suez, a large holding company, have replaced Chief Executive Gerard Worms, 59, with the successor he groomed, 46-year-old Gerard Mestrallet. Now the new CEO must work with a strong-willed board to determine if Suez should stay intact or be sold whole or in part to the highest bidder.

Until a few weeks ago, Mestrallet was running Societe Generale de Belgique, the Belgian industrial and financial holding company he helped Suez take over in a famous 1989 battle. The abrupt job switch came because of a proposed merger with Suez sought this spring by two of its biggest shareholders--L'Union des Assurances de Paris, an insurer, and Banque Nationale de Paris, a large bank. Counter-maneuvers by Worms to keep Suez independent cost him his job. Mestrallet was picked in a compromise with another Suez shareholder, water utility Lyonnaise des Eaux-Dumez, which opposes any sell-offs. In what is sure to be an uneasy arrangement, Lyonnaise CEO Jerome Monod and UAP Chairman Jacques Friedmann are to serve as Suez vice-chairmen.

Gentle and good-natured, Mestrallet may deal more smoothly than Worms with testy shareholders. This son of a Paris shopkeeper is a classic French technocrat who went from elite schools--where he once had Worms as a professor--to a government career. In 1982-84 he helped then-Finance Minister Jacques Delors revamp or shut down ailing state-backed companies. Restructuring and selling losers has been his forte at Suez' Belgian unit, too, where he boosted profits.

Mestrallet may find that Suez also needs breaking up. The French conglomerate is vulnerable because of weak real estate loans that resulted in a $1 billion loss last year. BNP, France's second-largest bank, covets Suez' Banque Indosuez. And Suez' stakes in hotelier Accor, Lyonnaise, and other companies could be spun off. The Suez saga is far from over.

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