Schneider - Aggressive French giant

Aggressive French giant - Schneider Electric

With annual revenue about $10bn, and 75,000 employees in 130 countries, France based Schneider Electric is high on the world list of major automation companies.

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Background - core acquisitions

Schneider has an interesting history. The company dates back to 1836, when two Schneider brothers acquired a company whose primary activities were iron and steel, heavy industry, railroads and shipbuilding; it became one of Europe's leading weapons manufacturers. It evolved as a financial conglomerate with the name Groupe Schneider until about the 1980s when it changed focus through a series of major acquisitions.

Here are the primary companies that became part of Schneider:

The French company Telemecanique claims to have invented the first contactor in 1924, and expanded its business to become a leading specialist in industrial control and automation. The company had about 14,500 employees and revenue of about $1.5bn when it was acquired by Schneider in 1988.
Since 1975, Schneider had already developed a minority interest in the French company Merlin Gerin, a manufacturer of high voltage electrical distribution. Schneider had developed a controlling interest by 1986. With 34,000 employees and revenue of about $4bn, Merlin Gerin became a wholly owned subsidiary of Schneider in 1992. The two French companies, Merlin Gerin and Telemechanique, were merged in 1994 to become the core of Schneider Electric.
Detroit Fuse and Manufacturing, a U.S. supplier of electrical distribution and industrial control equipment, began operations in 1902 with enclosed fuses and fuse switches. With the high recognition of its trademark (a capital D in a square), the company changed its name to Square D. The company made several acquisitions in the 1981-1986 timeframe, and had expanded to 18,500 employees, with annual revenue of $1.65 billion, when it was acquired by Schneider in 1991.
In 1968, with a core group of engineers, Dick Morley invented the first programmable logic controller. He established Modicon in the Boston, MA area, deriving its name from MOdular DIgital CONtrol. As it continued to grow, Modicon became part of Gould, and was then acquired by German AEG in 1989. In 1994, ownership was transferred to a joint venture between AEG and Schneider. Modicon employees joked that the only thing worse than being owned by the Germans, or the French, is to be owned by a French-German joint venture. In 1996 Schneider acquired all of AEG Schneider Automation, and so owned Modicon.

With the divestment of unrelated companies, the strategic refocusing on electrical controls was completed in the late 1990s. The company, now called Schneider Electric, is a world-class manufacturer of equipment for electrical distribution (70%), and automation products & systems (30%).

In 2001, Schneider Electric made a bold $6bn merger offer for Legrand, the French manufacturer of electrical plugs and switches. Even though Schneider eventually held over 98% of the shares, the merger was vetoed by the European Commission and rescinded in January 2002. It turns out Schneider actually generated a chunk of cash with this transaction. It traded stock, which was then cashed out.

Growth Mission

Schneider now has an ambitious corporate mission to support a strategy of faster, more competitive growth, beyond its own geographic and cultural limits. To stay competitive, its R&D percentage is 5.2%, relatively high for an automation company (most typically invest only 2%-3%). Schneider has created a group research labs in the U.S. and has strengthened its development and manufacturing capabilities in China.

Schneider operates in three sales regions: Europe (51%), North America (29%) and International (rest-of-world, which includes Japan and China) generates 20%. What it sells in China is mostly produced in China.

Aggressive worldwide acquisitions - with flexibility

The French giant is almost hyperactive on the acquisition front. A sustained acquisition drive has broadened its product lineup and sales presence in what it considers to be growth regions. During the past few years it has made acquisitions in many countries - Turkey, Hungary, India, Japan, Australia, S. Africa - while remaining active in their primary markets - Europe and the U.S.

Schneider is apparently unafraid to acquire interests in relatively small companies and making deals that adapt to the needs of the entrepreneurs involved. In the U.S., after acquiring Steeplechase (PLC control software), Schneider decided to contribute Steeplechase Software and a minority equity position in Think&Do, a relatively small start-up, to create the expanded software offerings of a new company called Entivity (the name comes from ENabling ProducTIVITY). Credit is due to the leadership of Schneider's Automation Business in the U.S. for being flexible enough to consider forming a strong and independent, yet linked, combination.

With a similar approach, Schneider has taken an active interest in Control Technology and Control.com. Also, it has purchased Ken Crater’s patents that it has actively tried to enforce them in combination with similar patents that they own through Square D.

No magic - still some dogs

After any company is acquired, its culture inevitably changes, now dominated by the new parent. Depending on the progress made against expectations of growth and profit, layoffs and changes occur that are often locally detrimental. This is understandable, but leaves many good employees feeling abandoned, subject to remote and unfamiliar corporate dominance.

Within a few years after the acquisition of Modicon and Square D, during the recent business decline when objectives were not met, Schneider started pulling in its horns by dismissing several people. In Nov. 2002, Square D eliminated 400 positions, the forth such reduction in 18 months. It appeared to observers the company was getting rid of many technical people, with a focus towards revenue generation, and a reduction in after-sales support. The once respected Modicon, with its strong development team and world-class production facilities, also started disappearing into the French woodwork.

The French don’t have a magic formula for acquisitions. They still leave problems unsolved. An industry observer in Germany had this to say about the Schneider acquisition of AEG Automation:

"The Schneider operation in Germany (the old AEG) has been going nowhere for a few years now. It has reached such low ebb that they don't even release the sales figures to the internal middle management anymore. Schneider doesn't want to be seen to be pulling out of the world's third biggest automation market, so they just carry on carrying on. The question is: How long can the French organization finance the failed German one?" Another criticism from Germany, perhaps Schneider’s toughest market because of Siemens domination:

"Schneider bought SIG-Positec for a wildly-over-the-top-price recently, in an attempt to get some motors & drives and create some internal competition. Unfortunately, SIG-Positec (Berger Lahr) is a stepper motor manufacturer with no servo business worth mentioning, no controls business and no market outside Germany. So there is no fit. Those responsible for orchestrating the debacle were quickly promoted to senior positions in the USA. If you think that the Germans are bad at integrating companies, then you should take a look at the French!"

Future acquisition possibilities

Schneider has deep pockets, and is aggressive enough to buy almost any company that complements their products and market focus. It is unlikely that they will acquire Rockwell - there is too much product overlap (Telemechanique, Square D, Modicon) and anti-trust problems could result.

With significant building automation operations, Schneider will clearly be one of the primary bidders for complementary Invensys segments that are now up for sale. Indeed, they are probably also eyeing Honeywell IS, as a means to get into process control systems, to broaden their discrete automation leadership. But, Invensys’ Foxboro would also provide that market entry.

Schneider would be a prime candidate to buy Wonderware from Invensys, if it was available, which indeed it is. A suggestion from a U.K. analyst fueled news of that possibility when Schneider visited Wonderware in July 2003 for a top-level “Dinner with Schneider” meeting. Wonderware claimed that Schneider was just shopping to sign up as an OEM. But I still believe that the possibility remains. What the 500-pound French gorilla wants, it will get. Schneider will surely buy at least some of the Invensys pieces, or all that remains.

This article was written specifically for my book: "Automation Unplugged", published by ISA Oct. 2003. It includes extracts from JimPinto.com eNews 14 Feb. 2001, 20 Jan. 2003 and 30 July 2003.

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