Bouygues S.A. Business Information, Profile, and History

History of Bouygues S.A.

Bouygues S.A. is a diversified group with two main operating sectors: construction and services. The construction sector is the business upon which the company was founded and includes buildings, oil-related and maritime works, public works, roads, and property. Starting in the 1980s, founder Francis Bouygues (pronounced "Bweeg") developed the services sector, which includes management of public utilities as well as media and telecommunications interests. The company is active in about 80 countries, and generates about 35 percent of its revenues outside of France.

Early History

Prior to 1952, Francis Bouygues worked alongside Eugène Freyssinet, a construction pioneer who revolutionized the industry through the introduction of prestressed concrete. With a sense of vision inspired by the works of Freyssinet, and an entrepreneurial spirit that would become his trademark, the young engineer used a US$1,700 loan acquired from his family to set up a small firm which operated from his apartment.

Much of Bouygues's work lacked the glamour of his future achievements. Yet Bouygues immersed himself in every aspect of his business, from driving a truck to managing construction sites. His first construction jobs included the renovation of old factories and predawn repair work at the Lido cabaret.

It was not long before Bouygues had made a name for himself; positive trends in the industry afforded Bouygues many opportunities to demonstrate his business acumen. To ensure the ready identification of the company's projects, Bouygues became one of the first firms to paint its equipment uniformly in one color, "minimum orange."

As the construction industry expanded during the 1950s and 1960s, due mainly to large public works projects, the rate of employee turnover became problematic. Competition among companies to hire workers was so acute that employees of Bouygues worked an average of only six months. In order to halt this trend, Bouygues created an elite corps of workers in 1963 called the Compagnons du Min-orange. Identified by the company color, this cadre of membership-only employees displayed greater dedication to the company, were less likely to leave Bouygues, and asked for fewer salary increases.

Membership in the Compagnons required nomination by a site manager and approval by a committee of Compagnons. Only one in ten nominees gained admittance. Members of the corps wore uniforms with badges or stars indicating rank. Although membership assured job security, members could be demoted, if they proved unworthy of their rank. Compagnons were rewarded with long weekend holidays to such vacation spots as Sardinia, Istanbul, and Dubrovnik. Bouygues's plan worked well; employee turnover decreased noticeably.

With a force of committed workers in place, Bouygues proceeded to make impressive gains in the industry. During the 1950s and 1960s the company erected several subsidized housing projects in Paris. The company's first large-scale project was the Parc des Princes soccer stadium, awarded to Bouygues in 1969. While the contract marked Bouygues's entrance to the higher ranks of the industry, Francis Bouygues's enthusiasm failed to conceal a certain degree of inexperience.

An extremely complex design, combined with the need for custom-made precast concrete, threatened the project from the start. When the first column erected began to slide, a school near the construction site was evacuated. With his reputation at stake, Bouygues quickly assumed personal control of the project and instituted corrective measures. When the project was completed (ahead of schedule), Bouygues's profit from the job was negligible. Nevertheless, Bouygues earned great respect for its efforts, and soon new orders began to accumulate.

Unlike industry competitors, Francis Bouygues insisted on complete control of his projects. And even though he was compelled to form partnerships on several occasions, he nevertheless avoided these arrangements as much as possible. In one instance, a joint highway contract placed Bouygues at one end of a road and the company's partner at the other end. Joint work commenced only when the two roads were connected.

Another example of Francis Bouygues's management style was shown by his decision to create a company union in 1968. This came at a time when the industry was plagued with labor disagreement and strikes. As members of a separate union, Bouygues employees never joined these strikes. Bouygues later encouraged his employees to gain affiliation with the Force Ouvrière, a politically conservative nationwide union, largely opposed to the more militant Confédération Générale du Travail. Force Ouvrière organized many of Bouygues's employees, although as late as 1982, 70 percent elected to remain exclusively with the company union. Even more significant than its lack of union organization, Bouygues employees had very few grievances; all were generally well-paid.

Domestic and Overseas Expansion Started in the Mid-1970s

Bouygues went public on the Paris Stock Exchange in 1970. The company's successes in and around Paris continued to grow as Bouygues completed power plants, an airport passenger terminal, a conference center, and numerous skyscrapers. In 1974 the company established Bouygues Offshore, a constructor of offshore oil rigs, barges, and other oil-related and maritime works. By the mid-1970s Bouygues announced plans to expand on two fronts: in the remainder of France, and overseas. Domestic operations centered on the private home building industry. The Maison Bouygues division built homes to satisfy individual tastes at inexpensive prices. By the early 1980s Bouygues had become the largest home builder in France.

The company's late entrance into overseas markets compelled Bouygues to bid lower than its competitors for an Iranian contract to build the 1974 Asian Games stadium in Teheran. Bouygues's price was 30 to 40 percent less than those of larger industry veterans such as Bechtel Group, Inc. Bouygues won the contract. This project led to further contracts to build residences in Iran and to perform repairs on the Shah's palace. Using the revolutionary concrete truss design of the Asian Games stadium, Bouygues went on to complete the 1.5-mile Bubiyan Bridge in Kuwait in 1983. Business expanded to Iraq, where the company constructed a nuclear power plant (destroyed by Israeli bombing in 1984). In addition, Bouygues constructed a mosque in Jeddah, Saudi Arabia. Outside the Middle East, the company secured contracts to build power plants and universities in West Africa.

As eager as it was to enter foreign markets, Bouygues was prevented from doing so by strict financial policies which were intended to protect the company from losses in unstable countries. Francis Bouygues refused to work on credit in these high-risk markets, and always remained ready to leave them on short notice; during the Iranian revolution in 1978, Bouygues moved out without incurring any losses.

One exception to Bouygues's reluctance to work with partners came in the late 1970s, when the Saudi Arabian government opened bidding for the construction of the University of Riyadh. Bouygues's desire to maintain his independence was overridden by his ambition; when the Saudi government informed Bouygues that his company was too small to win the contract alone, he formed a partnership with Alabama-based Blount, Inc. Still, Bouygues insisted on a 55 percent controlling interest in the partnership, which gave him the final approval in all decisions. The 40-month deadline set by the Saudis for the completion of the project discouraged most bidders. By the time the US$2 billion contract was to be awarded, all but two contenders had dropped out of the competition. When the contract was finally awarded to the Bouygues-Blount partnership in 1981, it was the largest fixed-price construction agreement ever. Because the two companies stood to lose money if the construction fell behind schedule, Bouygues and Blount completed the project on time and collected an additional US$50 million windfall.

Bouygues entered the 1980s with impressive financial credentials and great prestige. Yet changes in both the French and world economies forced the company to change its business strategy. High interest rates, falling oil prices, and a shrinking construction market forced Bouygues to reduce its workforce. President François Mitterand's social policies reduced the amount of government funds available for large public works projects. To compensate for the changing economic conditions, Bouygues was also forced to alter its financing methods for overseas projects; the Nigerian government paid the company four months late for a US$620 million power plant.

Began Diversifying in the 1980s

Bouygues initiated a program of diversification in order to mitigate the effects of the beleaguered construction market. An attempt to purchase Druout, a French insurance company, was thwarted when that company's former owners sued to halt the takeover. Later, Bouygues acquired a 55 percent share of Amrep S.A., an oil services company. In an attempt to broaden its presence in the United States, Bouygues purchased a number of engineering firms and reorganized them as an Omaha-based consortium called HDR, Inc. A larger holding company, called the Centerra Corporation, was also formed to perform work in design, engineering, financing, and construction. Centerra's first large project was construction of the New World Center in Seattle.

Among other acquisitions, the more significant long-term were Saur (water treatment and supply), ETDE (electrical power and communications networks), and Smac Acieroïd (waterproofing). However, the largest of all Bouygues's purchases of this period was in the area of construction. France's second largest construction group, Screg, accumulated a massive debt which made it vulnerable to a takeover; Bouygues thereby acquired Screg Group in 1986. With the addition of Screg, Bouygues's revenues increased to nearly US$7 billion. Through three Screg Group companies--Colas, Screg, and Sacer--Bouygues became involved in the road construction industry. Bouygues also added another construction company in 1986, Dragages et Travaux Publics, which specialized in public works.

In 1987 the company failed to take over Spie-Batignolles, a large French contractor in which Bouygues claimed it had an original 10 percent interest. Not only was the attempted takeover particularly acrimonious, it resulted in an inquiry in which Bouygues was accused of failing to declare a major corporate interest. (French law required investors to declare any corporate interest in excess of 10 percent.) The Commission des Operations de Bourse, the French stock market regulatory committee, later charged Bouygues with failing to declare a 24 percent interest in Spie-Batignolles.

Bouygues continued to diversify in the late 1980s. In April 1987 Bouygues and a consortium of private investors acquired a controlling interest in TF1, the leading French national television network. In 1989 the company acquired Grands Moulines de Paris, the leading flour-milling concern in France. Bouygues's construction side also completed several prestigious construction projects in the late 1990s: the Île de Ré Bridge in western France in 1988; the Grande Arche de La Défense, which was Paris's main monument to the bicentennial of the French Revolution, in 1989; and the Hassan II Mosque in Casablanca, also in 1989. In 1988 the company also moved into its impressive new headquarters, called Challenger, located in Saint-Quentin-en-Yvelines, northeast of Paris.

But perhaps the most noteworthy event of the late 1980s was the change in leadership at Bouygues. That year, Martin Bouygues, 37-year-old son of the company founder, was appointed group chairman and CEO. Francis Bouygues remained involved in the company's media activities, not only TF1 but also the 1990 launch of a start-up film production company, Ciby 2000. As chairman of Ciby 2000, Francis Bouygues helped to develop a movie company that produced such award-winning films as The Piano (1993), Underground (1995), and Secrets and Lies (1996). Bouygues, however, died of a heart attack at age 71 on July 24, 1993, after suffering from a long illness. He did not survive to see Ciby 2000 become profitable by 1997, at which time it had the rights to 80 films. But also by that time, Bouygues (the company) decided to put the nascent production company up for sale.

1990s and Beyond

Meanwhile, under Martin Bouygues's leadership, Bouygues completed several noteworthy construction projects in the 1990s, several through partnerships: the Library of France in 1992; the Channel Tunnel, which connected England and France, and the Normandy Bridge, the longest cable-stayed structure in the world, both in 1994; the Sydney metro in 1995; the Central Railway Station in Kuala Lumpur, Malaysia, in 1997; and the Stade de France, a stadium finished in time for the 1998 World Cup (of soccer) held in France. The company also continued to expand its nonconstruction operations. In 1991 Saur entered the power supply business. In 1994 the company increased its stake in TF1 from 25 percent to 37.5 percent. Forming partnerships became increasingly common at Bouygues in the 1990s, and in 1994 the company joined with French and international partners in winning a license for the third French mobile telephone network. A mobile service was subsequently launched by Bouygues Telecom on May 29, 1996. Bouygues in May 1994 entered into a strategic alliance with French power utility EDF to develop joint operations internationally in the area of public utilities management. In 1997 Bouygues purchased another French utilities company, Cise, and merged it with Saur to create the third largest public utilities management group in France.

While this expansion continued, problems were cropping up. In 1995 Bouygues posted a net loss of US$593 million resulting from writeoffs taken for losses in its property business and for start-up costs associated with Bouygues Telecom and the development of a paging service called Kobby. Several senior executives, including Martin Bouygues, were under formal investigation during 1997 for "misuse of corporate funds." And the company faced pressure from one of its largest shareholders--French financier Vincent Bolloré, who purchased about 10 percent of Bouygues through the open market in late 1997 and early 1998&mdashø divest its money-losing telecommunications businesses. But it appeared that Bouygues had no intention to do so, and in fact announced in December 1997 that it had formed a joint venture called 9 Telecom with Telecom Italia and Veba Telecom of Germany to develop a fixed-line telephone service in France. This latest move was made in anticipation of Europe's telecommunications markets being opened to competition at the beginning of 1998. Meantime, Bouygues had improved its financial position through the late 1996 initial public offering of 40 percent of Bouygues Offshore.

Bouygues returned to profitability for both 1996 and 1997. Revenues reached US$15.34 billion by 1997, more than double the level of ten years earlier. Construction remained by far Bouygues's largest sector, accounting for more than two-thirds of overall revenue. About 15 percent came from public utilities operations, 11 percent from media, and only 4.7 percent from telecommunications. Bouygues neared the 21st century running strong operations in construction and public utilities, with a more uncertain future in media and telecommunications.

Principal Subsidiaries: Bouygues BTP; Bouygues Offshore S.A. (60%); Bouygues Immobilier; Colas (57%); Saur (84.7%); TF1 (40%); Bouygues Telecom (55%); Grands Moulins de Paris.