The Schneider Affair

France relishes an affaire, be it of politics, passion or business. Last week both the Left Bank and the right banks puzzled over L'Affaire Schneider, which involves a battle for the control of an old and powerful iron and steel empire. Leading roles in the drama have been played by a former film beauty, a duchess and a Belgian nobleman.

The prize is Schneider & Cie., whose sales of $512 million last year came from its dominance of 40 companies with interests in mining, manufacturing, banking and real estate throughout Europe, Latin America, Canada and Australia. The leading figure in this family company is Liliane Schneider, who at 61 is tall, erect, smooth-skinned and almost as handsome as when she starred in such French film confections of the 1920s as The She-Goat with Golden Feet. Liliane married Heir Charles Schneider in 1931, started working at his side in 1942 and succeeded him as co-manager of Schneider after his death in 1960.

Selling Arms. In one of those intramural feuds common to European family-controlled industries, relations between the former actress and her prideful mother-in-law and her sister-in-law, the Duchess of Brissac, had been strained for a decade. Last June the two stunned Liliane by quietly selling their Schneider shares (about 8% of the total) to a Belgian group led by Baron Edouard Empain, 49, head of Belgium's big Electrorail holding company. The baron, whose family helped exploit the Congo for Belgium and promoted the Paris Metro system, is a grand-scale investor and industrialist with holdings in utilities, chemicals and electrical equipment. Last year he bought 20% of Mexico's Cesar Balsa hotel-and-construction group, whose properties include Manhattan's St. Regis Hotel. Already the baron has bought up 20% of Schneider's stock. But Liliane vows to keep Schneider management French; she has about 5% of the stock, and has been appointed to lifetime tenure as manager. Says she: "The direction of Schneider has always been French. Now I consider myself working for the French state."

The company has been under the Schneiders since 1836, when brothers Eugene and Adolphe Schneider started making locomotives and munitions south of the Burgundy wine district at Le Creusot. Under Liliane's elegant and cynical father-in-law, the late Charles Prosper Eugene Schneider, the company shipped arms to most of the world's warring nations. It bought iron mines, foundries and shipyards, and won control of more than 200 arms plants outside France, including Czechoslovakia's Skoda, which it sold to Czech interests just before the Nazis occupied all Czechoslovakia. The French government nationalized Schneider's French arms plants in 1937.

Linking Arms. The French government, wary of letting foreigners get control of any more big French companies, still takes quite an Interest in Schneider. Aides of Charles de Gaulle were particularly upset by rumors that if Baron Empain wins, he intends to sell Schneider to U.S. interests (the baron vigorously denies it). With discreet government encouragement, a group of big French banks have plotted to counter Empain. One already discussed strategy: in a complex deal, the banks would buy Schneider's 46% holdings in L'Union Europeenne bank and arrange a merger between Schneider and L'Union Europeenne. The result would dilute Empain's holdings in Schneider, and Liliane could count on the big banking group's support. Confident Liliane has so far not felt the need to call upon this rescue operation.

In his marble-columned, tapestried office on Paris' Place de Rio de Janeiro, Baron Empain protests that he does not want to swallow Schneider, but simply to link some of the branches of his empire with some of Schneider's for the sake of efficiency. He has also denied any unchivalrous intention of displacing Liliane. Says he: "Kicking everybody out--I never do that. That's always clumsy in France."

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