Shares in Veolia Environnement SA (VE) slumped Monday after it emerged that the group's Chairman and Chief Executive Antoine Frerot could be forced out by some members of the company's board just as the world's largest waste and water utility has embarked upon a major restructuring plan.

According to people familiar with the matter, Mr. Frerot's strategy at the helm of the French company has been called into question by several board members, among them his predecessor Henri Proglio, the chairman and CEO of state-controlled power giant Electricite de France SA (EDF.FR).

"Henri Proglio will demand (Frerot's) dismissal during the board meeting session of Feb.29," said one of the people, who spoke on condition of anonymity. "Proglio has been very disappointed by Frerot's strategy, which has called his legacy into question," the other person said.

In remarks released to the press, Mr. Proglio said: "Veolia's board is sovereign and the future of the company deserves better than this flow of political rumors."

French newspaper Liberation first reported the news on Sunday of the potential ouster of the Veolia chief executive. It was subsequently widely covered in the French media on Monday.

Liberation and others newspapers reported that former environment minister Jean-Louis Borloo would likely replace Mr. Frerot. Other names have also been circulated. The reports also said French President Nicolas Sarkozy supported the Veolia management change, suggestions that Mr. Sarkozy dismissed on Monday as "absurd."

In a letter Monday to Veolia employees, a copy of which was seen by Dow Jones Newswires, Mr. Frerot wrote that "the turnaround of Veolia Environnement is underway." Referring to the press reports, he wrote: "Together we must face this destabilization attempt."

Veolia shares ended down 3.1% in Paris trading on Monday, having fallen over 4% earlier in the day. By contrast, the blue chip CAC-40 index ended up 1%.

Analysts said the prospect of a management reshuffle at the helm of Veolia is coming at precisely the wrong time.

Last fall, Veolia issued a profit warning and unveiled a cost-cutting program designed to shrink its operations after incurring significant operational losses at its southern European and northern African businesses. The company booked a bit more than EUR800 million in writedowns in its first-half results in 2011. At the time, Veolia also disclosed an accounting fraud that took place in the company's U.S. Marine services business and amounted to EUR90 million in total over 2007-2010 due to results that had been inflated. The Marine Services unit offers offshore oil and gas and inland marine maintenance and was badly hit after BP PLC's oil spill in the Gulf of Mexico in 2010. The employees involved in the fraud left Veolia last May and Veolia said it was notifying the Securities and Exchange Commission.

"We would view a management change scenario as negative as it would raise questions regarding the group's ability to undergo a much-needed structural change," said Cheuvreux analyst Arnaud Joan.

The strategy laid out by Mr. Frerot to tackle the group's underperformance issues and unsustainable debt "seems to have been validated by the market," said Oddo Securities' analyst Stephane Lacaze.

It was unclear whether a CEO change would materialize. "There doesn't seem to be a clear majority within Veolia's board," said a person familiar with the matter.

-By Geraldine Amiel, Dow Jones Newswires; +33 1 40171767; geraldine.amiel@dowjones.com

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