Suez deal still in doubt

By Lorraine Mallinder

Date: 18/05/06

The proposed merger between French energy companies Suez and Gaz de France could yet be derailed even though the European Commission this week cleared the French government's role in engineering the deal.

The adoption of defensive measures aimed at warding off a bid from Italian rival Enel were approved at the annual meeting of Suez earlier this month (5 May).

But a combination of shareholder unrest at Suez and trade union opposition to the further privatisation of Gaz de France, a necessary prelude to the 7 billion euro merger, could still put paid to France's project in economic patriotism.

The 'poison pill' measures were made possible by new legislation introduced in France just over a month ago in response to foreign bids for French companies. Existing shareholders are able to purchase additional shares at preferential rates, effectively diluting the company's share value and raising the cost of a hostile bid.

Antoine Lenoir, spokesperson for Suez, dismissed rumours that the company still feared an advance from Enel. "I don't like the term poison pill," he told European Voice. "Even if there are a lot of rumours about Enel, they haven't made a bid. It's always been rumours from sources close to the company."

Enel representatives declined to comment on future plans, but recently renewed financial arrangements with banks, which would make a hostile bid possible, sparked rumours that the company could still be in the running for Suez.

The European Commission's internal market department has spent weeks analysing the French government's role in the deal. On Tuesday (16 May) a spokesman said the EU executive was now satisfied that Paris had not broken EU law.

Gaz de France was lined up as a marriage partner for Suez after the latter had been courted by Enel.

Whether or not Enel does end up launching a bid, the Suez-GdF merger could be threatened from within. Martin Forrest, spokesperson for activist fund Knight Vinke, said: "We don't think it gives shareholders value for their shares. We'd like to see an improvement in the financial terms." Ahead of the meeting, Albert Frère of Groupe Bruxelles Lambert, which has a 7.3% stake in Suez, also expressed reservations on the deal.

The merger is also under threat from union opposition to the privatisation of Gaz de France, only two years after the French government's pledge to keep at least 70% of the company in state hands. This holding would fall to only 34% if the merger did take place. The race is now on to push the legislation necessary for privatisation through parliament this summer to keep pace with the merger timetable.

A spokesperson for the French ministry of finance said that, having examined the industrial case for a merger, the government was now looking at social issues raised by unions.

But, the ruling UMP party, currently weakened by the Clearstream political smear scandal and a disastrous attempt at youth employment reform, is ill-equipped at present to push through what is seen as a privatisation by stealth. "It's clear that the political situation is so complicated now that anything that could prove disturbing might not be pushed through," said Nicolas Sobczak, an economist with Goldman Sachs in Paris.

Author suggests that the proposed merger between French energy companies Suez and Gaz de France could yet be derailed even though the European Commission had cleared the French government's role in engineering the deal.