International Power PLC's (IPR.LN) shares surged more than 11% Monday morning after confirmation that the U.K.-based company resumed talks to merge energy assets with French power company GDF Suez SA (GSZ.FR).
International Power PLC's (IPR.LN) shares surged more than 11% Monday morning after confirmation that the U.K.-based company resumed talks to merge energy assets with French power company GDF Suez SA (GSZ.FR).

At 1058 GMT, International Power's shares were up 30 pence, or 9.6%, at 347 pence, leading London 's FTSE 100 index. At 1035 GMT, GDF Suez's shares were up EUR0.41, or 1.7%, at EUR24.73, among the highest gainers on France 's CAC-40 index.

The two companies earlier Monday confirmed they are in talks to merge assets outside of continental Europe in a deal that would make GDF Suez the majority shareholder in International Power. The combination of International Power and GDF Suez Energy International would create an enlarged International Power to be traded on the main market of the London Stock Exchange.

Talks are only at a preliminary stage and the two companies said there is no certainty they will lead to an agreement. The discussions are continuing on the terms of the possible tie up, including the amount of debt that GDF Suez's international business would carry into the deal, the French company said.

Earlier discussions between the companies fell apart in January when they couldn't agree on terms.

Even with the caveats, International Power's said "the possible combination warrants consideration given the strategic rationale and potential for synergies."

International Power released a 103-page statement on the proposed merger and GDF Suez has created a section on its web site dedicated to the transaction, suggesting the deal will go ahead, Barclays Capital analyst Neil Beddall said in a note.

Analysts also underlined potential cost savings and the strategic fit. The deal would mainly involve operating power plants in emerging markets, which is one of the few areas of real growth for generators, UBS analyst Per Lekander said. UBS has a buy rating on GDF Suez.

Cheuvreux analysts Damien de Saint-Germain and Benoit Trochu said GDF Suez's balance sheet would be able to back International Power's project pipeline. They also noted that the deal would give GDF Suez a footprint in the U.K. ahead of an expected push to build new capacity in the country.

The deal could also help the new company land new deals--Evolution Securities analyst Lakis Athanasiou said International Power has been unsuccessful in the last two years in gaining new projects in the Middle East and may benefit from better French relationships there.

The companies didn't release financial details of the possible deal. The Mail On Sunday reported that GDF Suez was planning a GBP6.4 billion cash offer for International Power, while the Financial Times reported Monday that the deal could involve a cash pay-out to International Power shareholders.

GDF Suez declined to comment on the press reports. The French company said in its statement that if the combination were to be completed, it is expected that shares in International Power would be issued to GDF Suez.

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