Schneider Eyes Acquisitions in West as Tricoire Moves EastFrancois de Beaupuy
Schneider Electric SA Chief Executive Officer Jean-Pascal Tricoire, the first head of a CAC 40 company to move out of France, is on the prowl.
Tricoire, 49, may this year look to buy businesses primarily in North America and Europe rather than in Asia, where he moved with his family 16 months ago. The acquisitions will be aimed at giving the world’s largest maker of low-and medium-voltage electrical gear the critical mass and the technological edge it needs in energy-management software and services.
“More than half of our growth comes from Asia, but as we move toward more solutions and technologies, we’ll make some acquisitions with targets rather in the U.S. and Europe,” Schneider Chairman Henri Lachmann, 74, said in an interview last month in his office at the company’s headquarters near Paris, elaborating on Tricoire’s plans.
Since he was named CEO in May 2006, Tricoire has bought dozens of companies, spending more than 11.6 billion euros ($15 billion) net of disposals and doubling Schneider’s revenue to 24 billion euros. Although the company’s power solutions push eroded margins as such sales outgrew more profitable products like switchgears, the CEO is eyeing purchases that will make the company’s foray into services more lucrative.
Schneider’s net debt to earnings before interest, taxes, depreciation and amortization at 1.6, according to data compiled by Bloomberg -- compared with 1 for Siemens AG of Germany and 0.7 for Switzerland’s ABB Ltd. -- may mean a ratings downgrade if it borrows more for acquisitions. The company, which has an A3 rating from Moody’s Investors Service, says it’s prepared to live with a temporary one-level cut to see its strategy through.
Investors have supported Tricoire’s plan, pushing Schneider shares up 25 percent over his reign, even as the benchmark CAC 40 index fell 29 percent amid the turmoil wrought by the more than four-year-old global financial crisis. Today, Schneider’s shares fell 0.9 percent to 55.68 euros at 9:30 a.m. in Paris, valuing the company at 30.8 billion euros.
They have also been unperturbed by Tricoire’s decision to base himself in Hong Kong, a move that raised concerns among employees in France who saw jobs heading east. His relocation “triggered a lot of discussion,” independent board member Catherine Kopp, said in an interview.
“There were worries about whether he would abandon France, and favor Asia too much compared with the rest of the world,” she said. “There were questions about the reaction of employees and French institutions.”
Tricoire himself justified the move, telling Bloomberg in London in June that his relocation “is business driven.” He said with Asia representing the company’s fastest-growing market, where it was hiring the most, he wanted to be closer to customers and employees.
“The world is moving so fast, we have to be one step ahead,” he said. “We had insufficient coverage of Asia. If the boss doesn’t move, the guys stay in Paris, in Chicago.”
The move to Asia is among many elements that make Tricoire something of a maverick in France, setting him apart among CEOs of the country’s large companies.
In a country where most top executives come from France’s Grandes Ecoles, or elite universities, Tricoire joined the company in 1986, not long after graduating from ESEO, a second-tier French engineering school in Angers, Western France.
He also has a deeper international profile than most CAC 40 CEOs. Starting in 1989, he spent five years each for Schneider in Italy and China. He caught then-CEO Lachmann’s attention when he made it to a meeting on time in Beijing by riding a cabbage-filled rickshaw to avoid traffic.
He then moved to South Africa before being brought back to France as head of global strategic accounts. He was head of the international division from 2002 to 2003, and became chief operating officer in Oct. 2003 before becoming CEO.
Even before moving to Hong Kong, Tricoire spent only one week a month in France. Married to a Dutch national, the father of three who likes kayaking and backpacking, taught himself mandarin with books and tapes during his China stint.
“He’s one of the very few western leaders who can do business in Chinese,” said Luc Oursel, the CEO of Areva SA, the French maker of nuclear fuel and reactors, who worked with Tricoire at Schneider in China in the 1990s.
Tricoire’s Asia bet has paid off. The Asia-Pacific region accounted for 28 percent of revenue in the third quarter, leapfrogging North America’s 26 percent and catching up with Western Europe for the first time. In 2005, Europe brought in 44 percent, America 26 percent and Asia 18 percent.
The CEO has moved other function chiefs to Asia. Hong Kong is home to Schneider’s heads for strategy, the supply chain, and human resources. Another executive committee member is based in Beijing, five are in in Europe and four in the U.S.
“From the French employees’ point of view, there’s a feeling that more and more stuff is being moved abroad, including the executive management,” said Thierry Jacquet, a CFDT union representative at Schneider. The company is moving some HR and finance positions to Poland from France, he said.
Schneider’s rivals see the moves giving the company an edge in the markets it serves.
“It’s a signal for the entire company to ensure to take care of customers and business wherever it may be,” said Peter Loescher, CEO of Siemens.
Still, Tricoire’s overriding passion for Asia, particularly China, is questioned even by the company’s chairman.
“It may be a bit excessive,” Lachmann said, pointing out that China’s ambassador to France was the only outside guest at a ceremony where Tricoire was awarded the Legion of Honor in 2007.
Lachmann adds, however, that the CEO remains realistic on the pitfalls of doing business in China after Schneider lost a patent fight there a few years ago.
Tricoire will now be looking to beef up systems and services with purchases in North America and Europe, Lachmann said.
“We had considered making a large acquisition in the U.S., and if that had happened, I think he would have moved there,” he said.
In April 2011, Bloomberg News reported that Schneider was weighing a takeover offer for Tyco International Ltd., a New York-listed, Schaffhausen, Switzerland-based provider of fire detection equipment. Schneider denied it was in talks with Tyco.
Tricoire bought American Power Conversion Corp. in 2006 for $6.1 billion, making Schneider the leader in electrical gear for data centers. He acquired video-surveillance provider Pelco Inc. in 2007 for $1.5 billion. In Europe, Schneider bought Paris-based Areva’s power-distribution unit for $1.6 billion in 2010 and Spanish software maker Telvent GIT for $2 billion in 2011.
His acquisitions in emerging markets, although numerous, have been smaller.
“We’ve overpaid for some takeovers, some didn’t meet our expectations, or were badly integrated,” Lachmann said. “When you make something like 120 acquisitions, there are bound to be a few failures, but the biggest have been successes.”
Schneider’s bolt-on acquisitions in the U.S. and Europe will help it achieve geographical balance, said Lachmann, who’s preparing to relinquish his post to Tricoire in May if shareholders agree to merge the chairman and CEO functions.
“We want to keep a balance between the three continents and among countries,” with Europe, North America and Asia representing about 30 percent of sales each, Lachmann said.