The long-stalled merger between utility giant Suez SA and state-owned Gaz de France has been approved after the boards of both companies agreed to the creation of a second national energy giant, the two companies said yesterday.
The new company, called GDF Suez, will have a combined market value of 90 billion euros ($123.3 billion) and revenues of 72 billion euros ($98.7 billion), making it one of the top three listed utilities worldwide, GdF and Suez said in a joint statement.
Suez CEO Gerard Mestrallet will be chairman and chief executive of the new entity, while GdF CEO Jean-Francois Cirelli will become vice chairman and president.
The merger creates a second big player for France in the politically sensitive energy market after Electricite de France, Europe's largest power generator. It comes a time when Europe is seeking to lessen its dependence on Russian gas and protect energy security.
"Recent developments in the energy sector reinforced the strategic and industrial logic behind the transaction" which creates a "global energy leader," both companies said.
"The new entity will boost the energy supply safety, notably in gas, of France and furthermore of Europe," the Finance Ministry said in a statement.
Sarkozy coup:
Politically, the agreement is a coup for new President Nicolas Sarkozy's deal-brokering skills. The original merger plan, announced by Sarkozy's rival former prime minister Dominique de Villepin in February 2006, has been tangled in political, legal and financial problems for 18 months.
After earlier casting doubt on the merger, Sarkozy gave it new life last week culminating in a frenzy of weekend negotiations.
Controversially for Sarkozy, who promised as finance minister in 2004 not to privatize GdF, the government will reduce its stake of 79.8 percent of the natural gas company to 35 percent of GDF Suez.
French unions oppose the merger - both the original and updated versions - because it requires privatizing GdF.
The deal requires approval from European Union competition authorities - which gave the green light to the original deal - and shareholders of both companies. GdF and Suez said in their statement they had support from the major shareholders of both groups.
The transaction will close "as early as possible" in 2008.
To enable a "merger of equals" and to allow the merged company to focus on the energy market, Suez will spin off its environment activities in an initial public offering.
Redistributing shares:
Redistributing shares of Suez Environment - with sales of 11.4 billion euros ($15.62 billion) in 2006 - to Suez shareholders evens out the companies' worth as the shares of both companies diverged since the original deal was announced. As of Friday, Suez' market capitalization was about 54 billion euros ($74 billion), and 36 billion euros ($49.34 billion) for GdF.
Around 65 percent of Suez Environment - a major player in North American and other global water and waste markets - will be returned to Suez shareholders, allowing the Suez and GdF to merge on the basis of a share exchange ratio of 21 GdF shares for 22 Suez shares.
After the deal, GDF Suez will hold 35 percent of Suez Environment, with another 12 percent held by a coalition of shareholders including banking giant Credit Agricole and state-run nuclear manufacturer Areva. In a bid to reassure employees, these stakes will be held under a shareholder pact, to be negotiated with labor unions.
Supporters say the union will help ease European energy concerns in the coming decades. Analysts say the merger plan makes more financial sense with the sale of Suez' environment activities.
Critics outside France call the merger protectionist, since it was originally designed to fend off a hostile bid for Suez from Italy's Enel SpA.
(The Associated Press)