Arnaud and the question of defence

Heather Tomlinson asks if the rising son at Lagardere will make it a pure media group
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The Independent Online

Arnaud Lagardere is said to be a chip off the old block of his recently deceased father, Jean-Luc. That is quite a compliment. The 71-year-old Frenchman was one of the most respected businessman in Europe, as the former head of Lagardere, a group that excels in the two most politically sensitive of industries, media and defence.

"Lui est moi et moi est lui," the father said, a more elegant way of referring to chips and blocks. And the two are highly spoken of, Jean-Luc's obituaries dripping with praise. "Very often for chief executives, people are nice to them because they are important," says Christophe Cherblanc, a media analyst at SG Securities. "But for Jean-Luc, all the tributes are sincere, they [father and son] are very upstanding people. They are very respectable, they are not wheeler-dealers, and they carry a lot of weight."

After Jean-Luc's death earlier this month, Arnaud stepped into his father's shoes and will now run the €4.5bn (£3.1bn) group. The question is whether the dashing 42-year-old will follow the same path as his father, or whether he will use his pragmatism and experience of the US – he started his career at his father's American encyclopaedia publisher – to take a different strategy.

Jean-Luc built up a towering conglomerate that dominates French industry. In the UK the company owns Hachette, which has the magazines Elle, Red, B and Sugar, plus Orion Publishing, which boasts the authors Ian Rankin and Terry Pratchett. Around Europe it has 40 book-publishing houses and numerous TV and radio stations, on top of film and TV production companies. Quirkily, it also owns a chunk of EADS, the Franco-German arms manufacturer which named Arnaud as its chairman on Friday. Through EADS it also owns a controlling stake in one of the two big manufacturers of commercial aeroplanes, Airbus, and until recently it manufactured the Renault Avantime and Espace.

So far, the odd mix has not harmed the media business. In fact it was Jean-Luc who looked after the defence interests while Arnaud concentrated on the media. The son can be proud because even in these harsh times for media companies, the division reported underlying profits for last year up 15 per cent to €385m. Last week the rival magazine publisher Emap warned that conditions were particularly tough in France.

But the spread of businesses makes it look like a traditional conglomerate – a term that has a bad reputation on this side of the channel as a group of companies with no synergy. The question is whether Lagardere junior will split the industrial sector from the consumer sector so he can concentrate on the business he knows best. He has said: "I will follow the path my father set without hesitation and in the same spirit." But since Lagardere senior had said he might sell on the EADS stake in 2006, this is not an iron-clad commitment to the arms business.

Additionally, the popularity of the con- glomerate may be waning in France. Lagardere's larger rival, Vivendi Universal, almost collapsed after putting together a large number of different businesses. "Since the Vivendi crisis, the French business sentiment has turned against the grand conglomerate vision," says Alasdair Murray, director of business and social policy at the Centre for European Reform. "The key is Vivendi. There was a feeling that there was too much to handle, which has forced a number of businesses to focus on their own structure."

But there is another question of how Arnaud will continue to grow the large media business. Ironically, the prime source of growth is the range of problems at the once-mighty Vivendi. Its gaggle of media companies, from Houghton Mifflin in the US to the Universal music group, is now being sold off bit by bit.

Lagardere has snapped up the European publishing business for €1.25bn. But it is also understood to be looking at the TV assets of Vivendi. It owns 34 per cent of the digital TV service CanalSatellite, so it would not be too difficult to increase the holding. Expand, a film and TV production company, is believed to be on the block. As Arnaud gained his deal-making skills at Lagardere's own broadcasting division, a larger move would be logical.

In the UK, the company has expanded its realm by taking over a joint venture with Emap to run the Elle and Red magazines in the UK. But Kevin Hand, former chief executive of Emap and now chairman of Lagardere's Hachette UK, is looking to expand further, either through launching new magazines or by acquisition. With the regulations on media ownership relaxing in this country, Lagardere could set its sights higher. Whether or not the arms business stays in the family fold, Lagardere junior has plenty of opportunity to carry on the empire-building habits of his father.