A Global Clash at France's Gemplus

Big-name U.S. and German investors have forced a high-stakes executive shakeup at the troubled technology company

A palace coup engineered by U.S. buyout fund Texas Pacific Group and Germany's Quandt family has ousted the top management of Gemplus. The French high-tech company is the world's No. 1 producer of chip-embedded "smart" cards used for GSM-model cell phones, among other applications.

Marc Lassus, Gemplus' founder, resigned as chairman under pressure on Dec. 19, along with CEO Antonio Perez, whom Lassus had helped recruit. The two had clashed recently over restructuring the financially troubled company.

The shakeup, announced after a stormy three-day board meeting in Washington, D.C., marks an effort by Gemplus' two major investors, Texas Pacific and the Quandts, to take a firmer hand in running the company. Texas Pacific CEO David Bonderman will join the Gemplus board as vice-chairman. While it will seek permanent replacements for Perez and Lassus, the board named Ronald Mackintosh, a veteran high-tech industry executive with close ties to Texas Pacific, as interim CEO, and Hasso von Falkenhausen, who was Gemplus' chairman in the late 1990s and is close to the Quandts, as interim chairman.

"FRESH SLATE."

  The new management team faces a grim situation. Since its IPO only a year ago, Gemplus has been battered by the sharp downturn in the cell-phone industry, its largest market. It has posted operating losses every quarter this year, most recently losing $49 million on $200 million in sales during the third quarter.

When Perez tried to cut Gemplus' 7,800-person work force, though, he met resistance from Lassus, a charismatic Frenchman who founded the company in 1988 and maintained good relations with labor unions. The two briefly patched up their differences in early summer, when Texas Pacific -- which has invested nearly $500 million in Gemplus and is its largest shareholder, with a 26.9% stake -- helped negotiate a truce. But they soon began quarreling again, effectively blocking Perez' efforts to lay off personnel.

Texas Pacific had strongly backed Perez in the past but eventually concluded that he lacked the political savvy to lead Gemplus out of the crisis, according to a source with direct knowledge of the situation. In pushing to oust both Perez and Lassus, the U.S. buyout firm allied with longtime minority shareholder the Quandts, who have a 24.6% stake in Gemplus. "What was needed was a fresh slate," the source says. The shakeup "signals a strong engagement to resolve this situation," the source adds. "Now, there will be one leader, one vision, one path, one goal for this company." Neither Perez nor Lassus was available for comment.

Investors seem encouraged. Shares have risen 8% since the resignations were announced. But Gemplus will take a financial hit from Perez' departure. It agreed to buy back shares that he now holds, which the company estimates will cost as much as $16.2 million.

NON PARLE VOUS.

  The new management is sure to renew efforts to trim the company's workforce. So far, only about 900 employees have been laid off -- none of them in France, owing to strong opposition from unions, which drew support from Lassus. "Marc just wouldn't let anybody go," the source says of Lassus, who owns 18% of the company and will remain as a board member.

Perez, who used to head Hewlett-Packard's highly successful inkjet-printer division, drew criticism for failing to adjust his U.S.-style management techniques to Gemplus, which is headquartered in the Provence town of Gemenos. The French press cried in outrage when it was disclosed that Perez got a package of stock and options worth $97 million when he was hired. He also brought in several former HP colleagues in top-management jobs, none of whom, himself included, spoke French.

If Gemplus doesn't recover, it will be a major setback for Texas Pacific, whose nearly half-billion-dollar investment in early 2000 was the largest private-equity deal ever done in Europe. At the time of the IPO in December, 2000, Texas Pacific's stake was valued at more than $825 million, It's now worth less than $300 million.

Another big loser could be Perez, who had been well regarded for his stint at HP. Only a few months ago, his name was being bandied about as a possible successor to Carly Fiorina, the HP CEO who's likely to lose her job if her plan to acquire Compaq falls through (see BW Cover Story, 12/24/01, "Carly's Last Stand?"). Perez's failure to get Gemplus back on track certainly won't boost his chances there.

By Carol Matlack in Paris

Edited by Patricia O'Connell

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