Tractebel S.A.

Place du Trône 1
1000 Brussels
Belgium
(322) 507 02 11
Fax: (322) 513 43 27
Web site: http://wwiv.generale.be

Public Subsidiary
Incorporated: 1929
Employees: 36,900
Sales: BFr 340.69 billion (1996)
Stock Exchanges: Brussels
SICs: 4931 Electric & Other Services Combined; 4932 Gas & Other Services Combined; 6552 Subdividers & Developers, Not Elsewhere Classified; 8711 Engineering Services; 4841 Cable & Other Pay Television Services; 4899 Communications Services, Not Elsewhere Classified

Tractebel S.A. is one of Belgium’s leading industrial groups, with holdings ranging from utilities to engineering to real estate. A publicly traded company, Tractebel is controlled by principal shareholder Société Genérale de Belgique (SGB), which holds 50.3 percent of Tractebel’s stock. SGB, which is Belgium’s largest holding company, is in turn controlled by France’s Suez-Lyonnaise, the holding giant formed by the merger of Compagnie de Suez and Lyonnaise des Eaux in early 1997.

Through its holdings, Tractebel concentrates on seven specific sectors—electricity and gas utilities in Belgium; international electricity and gas utilities, communications, technical installations and services, real estate, and engineering—in both the Belgian and international markets. Tractebel’s holdings in more than 140 subsidiaries worldwide are organized into seven primary operating units: Electricity in Belgium (EIB); Gas in Belgium (GIB); Electricity and Gas International (EGI); Communications; Technical Installations and Services to Communities; Real Estate; and Engineering. Active in more than 100 countries, with nearly 37,000 employees worldwide, Tractebel has worked steadily on reducing its traditional reliance on the Belgian market for its revenues and profits—by the mid-1990s, Belgium represented less than 72 percent of the company’s profits, down from 90 percent or more during the 1980s. Nonetheless, Tractebel’s Belgian utilities holdings remain the company’s core activity.

With its controlling share of Electrabel, Tractebel’s EIB unit supplies more than 93 percent of Belgium’s electricity requirements, as well as more than 89 percent of gas distribution, nearly 55 percent of cable television distribution, and 5 percent of the country’s water distribution. Through Electrabel and the company’s nearly 80 percent ownership of CODITEL, Tractebel is also a primary supplier of cable television services in Belgium, and in Luxembourg, Switzerland, and the United States. The company’s GIB unit, through Tractebel’s Distrigas holdings, provides supply, transportation, and storage facilities for natural gas in the Belgium market, as well as an expanding presence in positioning Belgium as a hub for European natural gas distribution.

International utility distribution is conducted through Tractebel’s EGI arm. From its beginning in the early 1990s, EGI has expanded Tractebel’s utility presence in more than 100 countries. The company has invested some US $650 million into more than 17 electricity and gas installations beyond Belgium, adding some 10,000 megawatts of generating capacity and positioning Tractebel as one of the top utility suppliers worldwide. Through EGI, which includes subsidiaries Powerfin and CRSS, Tractebel has power projects under construction or already in operation in the United States, Canada, Germany, Italy, Northern Ireland, Portugal, Italy, Hungary, China, Thailand, Vietnam, Singapore, Kazakhstan, India, and Argentina.

The company’s Technical Installations and Services segment, operating primarily through Tractebel’s holdings in subsidiary Groupe Fabricom, provide international construction and management of industrial installations, as well as environmental services, particularly waste management collection and treatment, for some 11 countries. Tractebel Ingenerie, the company’s long-established engineering arm, is one of the largest in Europe and the world, with more than 2,500 engineers, draftsmen, and other staff providing engineering services for projects in the electricity, gas, hydraulics, construction, regional and urban, computer systems, and systems integration fields. Through Tractebel’s 31 percent holding in Compagnie Immobilière de Belgique, the company is also a primary player in Belgium’s real estate development, construction, and management markets.

Since the late 1980s, Tractebel has undergone a dramatic transformation in its activities. Chief architect of this development is Baron Philippe Bodson, who has served as the company’s CEO since 1989. Tractebel’s 1996 sales were approximately BFr 340 billion, equivalent to some US $11.6 billion. The company’s 44 percent controlling stake in Electrabel contributed some BFr 241 billion to the company’s total sales for the year.

Roots in the 19th Century

Tractebel celebrated its 100th anniversary in 1995, tracing its history back to the creation of two companies, Compagnie Mutuelle des Tramways and Société Genérale Beige d’Entreprises Electriques in 1895 by long-time controlling shareholder Société Genérale de Belgique, the Belgium holding company powerhouse. SGB’s own history traced back to 1822 and before the official creation of the Belgian state, when it was established by William I of Orange. Charged with fostering the economic and industrial development of the southern provinces of the low countries, which had only recently emerged from under the rulership of the Austria-Hungary empire, the Société Genérale de Pays Bas, as it was then called, was given the authority to issue bank notes and act as the state cashier, a role it continued to play after Belgium’s independence from the Netherlands in 1830.

After the Banque Nationale de Belgique was formally established in 1850, SGB concentrated on its role as Belgium’s primary joint-venture capital and development concern, playing a key role in developing the country’s infrastructure. In this capacity, SGB provided capital for the building of Belgium rail and road infrastructure, major construction projects, coal and other mining activities, and the development of the country’s gas and electrical utilities, as well as other industrial projects. In 1895, SGB established subsidiary companies for two of its primary activities, tram (streetcar) construction and operation, and electricity gas distribution. Both the Compagnie Mutelle des Tramways and the Société Genérale d’Entreprises Electriques were active internationally, with the subsidiaries of the former supplying streetcar lines to cities around the world, and the latter becoming through its subsidiaries a global utility operator. By the start of World War I, these international efforts represented as much as 70 percent of both companie’s activities.

The social and political upheaval following World War I, however, and the rise of new nation states, particularly with the break-up of the Austria-Hungary empire, saw the nationalization of many of the companie’s foreign subsidiaries. In October 1929, the two companies were combined, forming Tractebel. The newly named company continued to lose its foreign utility and tramway concessions, especially during the Depression of the 1930s and the build-up to World War II. By 1945, Tractebel had been forced to give up its international operations entirely. For the next 40 years, the company would concentrate almost solely on its home market.

Following the Depression and especially World War II, SGB began consolidating the related activities of its many subsidiaries, giving rise to Electrobel, which served as Belgium’s primary utility supplier, and Tractionel, which provided industrial engineering services, including playing a role in establishing the company’s nuclear power industry. Electrobel and Tractionel also began operating a joint-venture subsidiary, Tractionel Electrobel Engineering, which grew to become the sixth largest international engineering design firm. Both Tractionel and Electrobel evolved into major Belgian holding companies, with Tractionel’s holdings extending beyond its energy portfolio into the foods, chemicals, cable television, and property sectors. SGB remained principal shareholder of both companies.

Return to Global Focus in the 1990s

In 1986, Tractionel and Electrobel agreed to merge operations, forming the present-day Tractebel. Several factors were behind this move: the growing internationalization of the world industry, with the resulting heightening of international competition; the coming unification of the European market; and a rising trend toward the deregulation of many state-controlled industries. The newly combined companie’s operations boasted a 1985 portfolio worth some BFr 56 billion, with combined net profits of BFr 5.7 billion. One year later, Tractebel’s portfolio had grown to BFr 67.8 billion and the company’s net profit reached BFr 6.15 billion (worth nearly US $164 million). Tractebel itself, however, remained a largely passive holding company. More than 90 percent of the company’s business came from its utility holdings.

In 1987, with the breakup of Imperial Continental Gas into two companies, the Calor Group and Contibel, Tractebel and partner Groupe Bruxelles Lambert, launched a successful takeover bid for Contibel, which contained a strong portfolio of investments in Belgium’s utilities. The bid, which cost the two holding companies nearly US $740 million, gave Tractebel tighter control of the Belgian utility sector. But the “Black Monday” stock market crash in October of that year cost the company dearly, and exposed it—and parent SGB—to new vulnerabilities.

Company Perspectives:

The Tractebel Group’s strategy is to offer its shareholders a long-term return higher than the Belgian stock exchange average. To achieve this in an economy that is rapidly becoming global, with ever-fiercer competition, the Tractebel Group has adopted a double strategy: firstly, to attain sufficient overall size as a player to be reckoned with on the international scene, and secondly, to develop critical mass in each of its core activities, on a European or even worldwide scale.

These became particularly evident the following year, as parent SGB faced a new upheaval: In 1988 Carlo De Benedetti, the Italian industrialist, launched a hostile takeover bid for SGB. The company resisted for several months, and finally turned to the French Compagnie Financiére de Suez as a “white knight.” Suez’s holding in SGB rose to 63 percent, while SGB’s own holdings, previously spread out over a variety of industries, tightened to focus on several major Belgian players, including Tractebel. One year later, SGB increased its hold on Tractebel, after swapping part of its shares in Belgian oil and petrochemicals group Petrofina, the country’s largest company, for a large part of the Tractebel shares held by rival Groupe Bruxelles Lambert, led by Albert Frere. The deal boosted SGB’s participation in Tractebel to more than 40 percent. By then, Tractebel’s net profits had risen to BFr 9.5 billion (US $271 million). More than 85 percent of the company’s profits, however, continued to come from the Belgian energy market.

The attempted takeover of SGB and its subsequent rescue by Suez spurred Tractebel to make its own transformation. In 1989, faced with the inevitable loss of its near-monopoly on Belgium’s utility sector with the looming unification of the European market, Tractebel adopted a new strategy calling for the company to return to the global industrial market of its early history. Leading the company’s transformation was Baron Philippe Bodson, who had earned his title of nobility as the head of the Belgium Industrial Federation prior to joining Tractebel.

The U.S. market, where deregulation had progressed more rapidly than elsewhere, became one of Tractebel’s primary expansion targets. Tractebel at first eyed building a media portfolio, beginning in 1989 with the US $30 million purchase of a 20 percent stake in Act III Communications, based in Los Angeles. The company’s communications arm would increase its U.S. presence during the first half of the 1990s, adding, through its Coditel subsidiary and its financial and management participation in the Prime Cable Group, cable television operations in the Houston, Las Vegas, and other large U.S. city markets. Next, the company began building its U.S. energy portfolio, adding, through its American Tractebel Corporation subsidiary, 50 percent ownership of the construction and operation of an electrical plant in Quebec. The company also returned to Argentina’s energy market—where the company has been active early in the century—after that country abandoned state control of the utility sector. In Europe, Tractebel, through its Fabricom subsidiary, purchased 70 percent of Hungary’s PVV, focused on that country’s electrical utility market. On the home front, the company’s Electrabel and Distrigas subsidiaries reached agreement to build an electricity generating facility in Zeebrugge.

Posting a net profit of BFr 29.4 billion (US $835 million) in 1994, Tractebel’s international expansion would continue into the mid-1990s. As Bodson explained to the Houston Chronicle, ”The Belgian market is almost saturated and that is why we have decided to go abroad.” The company’s expansion drive was helped by its strong war chest, Bodson continued: “I think an acquisition of half a billion dollars would definitely be possible for us, even tomorrow.” In May 1995, Tractebel, through its Powerfin subsidiary, paid US $206 million for the friendly takeover of CRSS, based in Houston. This move brought Tractebel in the U.S. utility market, with several electric power generating stations, principally located in Vermont. Meanwhile, the company’s energy utility interests had spread to include locations in Ireland, Hungary, Portugal, Oman, Italy, Chile, and other countries. After taking over the utility management of Kazakhstan, formed after the breakup of the Soviet Union, Tractebel company would also move into the Asian market, adding Thailand, Singapore, and India, among others. In the United States, Tractebel increased its energy capacity, when it announced a US $500 million joint-venture with Phillips Coal Co. to build a 400-megawatt lignite-burning power plant in Mississippi.

In September 1996, SGB reached agreement with Electrafina and Royale Beige, both controlled by Groupe Bruxelles Lambert, to buy those companies’ combined 25 percent share of Tractebel. The purchase, worth some BFr 49 billion (US $1.6 billion), raised SGB’s ownership position to more than 65 percent. Several months later, however, SGB prompted the merger between Tractebel and another subsidiary, Powerfin, in which Tractebel already had a strong interest. The merger, which involved a shares flotation in Tractebel, and the dissolving of Powerfin’s shares into Tractebel, decreased SGB’s direct participation in Tractebel to 50.3 percent. This move came in the light of major development in SGB’s control: the merger of parent company Suez into French water company Lyonnaise des Eaux, a move that effectively placed the Belgian utility sector under a foreign utility operator’s control for the first time. In this light, Tractebel’s international expansion— which, by mid-1997 had placed the company in more than 100 countries, with power generating capacity of more than 32,000 megawatts—assured Tractebel of a prominent role in the future worldwide industrial market.