Suez adopts new terms for giant energy merger

Gaz de France and Suez yesterday cleared the way to the creation of Europe's third-largest power company after their boards approved the revised terms of a politically charged merger plan.

The "merger of equals", first drawn up 18 months ago but delayed by disputes over valuation and control, will be on the basis of a share exchange ratio of 0.9545 to 1, or 21 Gaz de France shares for 22 Suez shares, the groups said in a joint statement.

The companies' boards met late on Sunday to approve the deal, hammered out in government offices over the weekend after French President Nicolas Sarkozy put pressure on Suez to abandon the majority of its historic water assets and focus on electricity and gas.

Under the terms of the deal, Suez will divest 65 per cent of its environment activities - valued by analysts between €18 and 20 billion - through a stock market listing, which will take place at the same time as the merger.

GDF and Suez have a combined value of €90 billion before the spin-off of Suez environment.

The spin-off was necessary to slim down Suez and preserve a politically acceptable merger of equals with the smaller GDF, sources close to the talks said at the weekend. The 65 per cent stake in the environment business will be distributed to Suez shareholders.

The transaction to create GDF Suez will be completed as early as possible in 2008, the companies said.

The merger implies the privatisation of Gaz de France, a move strongly opposed by unions and opposition Socialists, with the French state due to hold a stake of "more than 35 per cent" in GDF Suez, compared with around 80 per cent currently.

The combined GDF Suez would be the third-largest European power company after EDF and E.ON.

The deal is a new version of a plan announced by former Prime Minister Dominique de Villepin in early last year to prevent a foreign takeover of Suez, while beefing up GDF's power assets.

Mr Sarkozy, elected in May on a programme of economic reforms and an advocate of a hands-on industrial policy, held meetings on Saturday to smooth a deal but failed to impress unions who accused him of abandoning earlier pledges to keep GDF public.

Under the original merger plan, put together in February last year, Suez would have merged with Gaz de France on the basis of equals.

But since then, investors have driven up the value of Suez relative to GDF, weighing on the government's shareholding in the new group and raising the prospect of another row over cash compensation to Suez shareholders just as GDF is privatised.

A union source said Credit Agricole bank and state-owned firms Areva and CDC, which between them own 8.4 per cent of Suez, would buy further into the environment business, allowing Suez to claim that it and its partners retained 48 per cent of it in total.

Merger key dates

February 21-22, 2006 - Italian utility Enel says it could make a bid for rival Suez to get its hands on its Belgian power unit Electrabel.

February 25 - French Prime Minister Dominique de Villepin announces planned merger of Suez and Gaz de France (GDF), raising protests and accusations of protectionism from Italy.

June 14-15 - Finance Minister Thierry Breton presents merger and GDF privatisation plan to a non-voting session of Parliament and the upper Senate chamber.

June 19 - French government postpones decisive parliamentary debate on the GDF Bill until this month in the face of mounting opposition from the ruling conservatives.

June 28 - French Cabinet approves the privatisation Bill.

August 29-31 - Parliamentary Commission reviews a record 137,449 amendments filed by left-wing opposition members in an attempt to filibuster the process.

September 7 - Parliament starts debate on GDF privatisation.

September 27 - The French Parliament approves the key article of an energy Bill intended to pave the way for the merger.

October 3 - France's lower house of Parliament approves the Bill.

November 8 - The upper house of the French Parliament gives final approval to the law on privatisation of Gaz de France.

November 14 - The European Commission conditionally clears the planned merger.

November 21 - A Paris appeals court orders Gaz de France to postpone a board meeting called to approve its planned merger with Suez after trade unions demanded more time to examine the details, which means the merger cannot become effective until after France's presidential election in April and May.

May 2007 - France's conservative candidate Nicolas Sarkozy's presidential victory gives new impetus to the planned merger.

Factbox - Key details on Suez

• Its history goes back to the 1822 foundation of Societe Generale des Pays Bas by William of Orange and the 1858 creation in Paris by Ferdinand de Lesseps of the Universal Company for the Maritime Channel of Suez.

• Suez Energy includes Electrabel, Distrigaz, Fluxys, SUEZ Energy International, Elyo, Fabricom and Tractebel Engineering. Energy activities account for 75 per cent of group revenues.

• Suez Environment, whose origins are in Lyonnaise des Eaux, supplies water, sanitation and waste services to industrial and individual customers around the world with the Ondeo, SITA and Degremont brand names.

• Suez employs 140,000 people and says it is Europe's biggest supplier of energy services, the fifth biggest power producer and sixth biggest gas operator.

• Total group sales rose to €44.3 billion last year from 41.49 billion in 2005. It posted first-half revenue of €23.729 billion this year, up from 22.353 billion in the first half of last year.

• In 2003 Suez became a majority shareholder in Belgium's Electrabel, which has expanded in France, Spain, Italy and other countries. Suez bought out the minorities and now owns 100 percent of Electrabel.

• Last July the company sold its 30.53 per cent stake in Compagnie Immobiliere de Belgique (Immobel) to JER Property Fund, a subsidiary of JER Europe Fund.

• Suez has a market capitalisation of €54 billion - chairman and chief executive Gerard Mestrallet, 58, took the helm of Suez in 2001.

• It reported a bigger than expected 11 per cent drop in first-half sales this year to €13.8 billion in from €15.423 billion in the same period of last year.