A CEO under pressure
* Dassault family is lobbying to replace Antoine Frerot…
* …with the restructuring plan seen as unambitious
* Position of French government will be determinant
* Reduce rating confirmed
*Dassault family is lobbying to replace Antoine Frerot
According to media report (Les Echos) the Dassault family, the secondlargest
shareholder in Veolia, is seeking to oust the group’s CEO, while
replacing him with David Azema, the head of French state holding
company APE. Such move would allow the family to support the socialist
French government on top of the implementation of further costs, which
the family currently sees as insufficient to straighten up the group’s
profitability. The Dassault family owns 5.99% of Veolia Environnement's
shares, which have lost 49% of their value since being acquired (via the
unlisted Group Industriel Marcel) in 2008 (acquisition being made at
EUR19 per share, and share currently trades at EUR12).
* …with restructuring plan seen as not ambitious
Veolia, which already raised its fixed costs reduction targets twice, now
targets EUR750m in cumulated net impact by 2015 (o/w 80% is in EBITDA
and 20% on net income from associates in P&L) to straighten up the group’s
profitability, which is impacted by massive pricing deterioration in its French
water business. This plan is seen as insufficient and too timid by the Dassault
family, which wants to drive up the group’s profitability and also increase the
group’s share price. Frerot’s position as CEO has already been at risk, with
Henri Proglio (CEO of EDF) attempting to replace him with conservative
politician Jean-Louis Borloo in 2012.
* Position from French government will be determinant
The French state, which is the top shareholder in Veolia with an 8.85% stake
through the CDC, may play an important role in this case, as it will be able to
support Frerot’s position at Veolia or not. Yet, according to Reuters, an
official at French Prime Minister Jean-Marc Ayrault's office said Matignon
will not interfere in management appointments at private companies.
* Reduce rating confirmed
We view this situation as negative for the group, which is entering the most
difficult part of its transition phase: restructuring and modifying Veolia’s costs
structure. A change in management will not make the implementation of
these costs cut easier. Reduce and TP of EUR10 confirmed.