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G?rard Mestrallet


The most G?rard Mestrallet will do is smile slightly when he's compared, as he often is these days, to his brasher and more famous counterpart in French management: Vivendi Universal boss Jean-Marie Messier. The two men have pursued startlingly similar career paths. Both earned degrees at the elite Paris-based Ecole Polytechnique before scoring at the top of their class at the even more elite Ecole Nationale d'Administration, the finishing school for government mandarins. Both held key positions in French government. And both took over old-style water utilities in the mid-1990s and transformed them into global powerhouses.

And that's where the similarities end. Messier went on a dizzying multibillion-dollar acquisition binge in an effort to turn Vivendi into a media behemoth. As chairman and chief executive of Suez (SZE), Mestrallet went to work focusing on the two areas he identified as his group's core businesses: water and power. His spectacular success at pursuing that strategy has made the quiet 53-year-old one of the most prominent French managers of his generation. Today, Messier's Vivendi is regarded as a tangled, debt-ridden mess, while Mestrallet's Suez is held up as a model of corporate governance, and it makes solid profits, with $1 billion in net income last year on $37.6 billion in sales.

When Mestrallet took over Compagnie Financi?re de Suez in 1995, the group needed major surgery. The old-fashioned company had managed the Suez Canal for close to 100 years until Egypt nationalized it in 1956. Over the following four decades, it grew into a sprawling financial group with interests in banking, insurance, and real estate. "The key question I asked myself over six months was whether we could become a real actor in financial services," recalls Mestrallet, as he cracks open a Belgian beer in his office at the end of a long day.

The answer was no. Within months, Mestrallet reaped billions by selling Suez' key finance assets at the top of the market. He used part of the proceeds to buy Belgian energy giant Tractebel. And in May, 1997, he executed his masterstroke: a merger with troubled water utility Lyonnaise des Eaux, which boasted extensive international holdings. Mestrallet's goal would henceforth be to make Suez a global leader in water and energy.

He has been pursuing that objective with relentless determination. But unlike some of his peers, he has largely avoided overpaying for assets. Over the past five years, Mestrallet has invested close to $50 billion in 300 operations in 130 countries. Suez spent some $6 billion for acquisitions in the U.S. water market alone, purchasing groups like Calgon, Nalco, and United Water Resources. Mestrallet has also snapped up power plants in the U.S., as well as building new ones from Thailand to Brazil.

In sticking to what he does best, Mestrallet has largely shut his ears to the siren calls of analysts and bankers trying to persuade him to diversify into higher-growth areas. In 2000, Mestrallet considered bidding on 3G mobile-telephone licenses in partnership with Spain's Telefnica. But he quickly reconsidered when he concluded that no business model could justify the huge up-front costs.

Later on, Mestrallet avoided a potentially fatal misstep when he rejected plans put to him by international consultants--he's too polite to name names--designed to transform Suez into an Enron Corp.-style trading operation. With Enron flying high, it was a hard decision. "But we always conceived of trading as a complement to our core [energy] business, not as a pure play," says Mestrallet. Now he's in a position to cherry-pick some of Enron's best assets.

Mestrallet is also France's leading apostle of better corporate governance. From a complicated maze of holdings a few years ago, he has whittled Suez down to three 100%-owned subsidiaries in power, water, and waste services. And the Suez board is as independent as they come in Europe. To top it all off, Suez's stock price has steadily outperformed the Paris index over the past five years. Messier, eat your heart out.


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