One hurdle cleared, but Suez-GdF merger faces further obstacles

Suez and Gaz de France (GdF) this week cleared a major hurdle that lay in the path of their plans to merge, when the French parliament voted in favour of cutting the state’s stake in GdF. But there is still shareholder opposition to the merger and EU regulators to be satisfied.

French parliamentarians approved on Tuesday (3 October) plans to reduce the government’s stake in the company by more than half to just 37%. The measure, an important pre-condition for the deal, was approved by a clear majority, clearing with one fell swoop the record number of amendments (totalling 137,000) proposed by leftist parliamentarians. Three days of strikes by GdF and sympathetic Electricité de France unions failed to derail the liberalisation.

But Suez shareholders have a crucial say on the merger and could yet kill off the deal.

"For us, one of the key things is that Suez is still very much in the hands of international shareholders who will vote at the… [extraordinary shareholders’] meeting in December," said Martin Forrest, spokesperson with activist fund Knight Vinke, which has a minority stake in the company. The fund’s alternative plans for a fairer deal for shareholders, which included the spin-off of Suez’s environment and energy services, were summarily dismissed by the company’s board last month.

According to Knight Vinke, 18 out of 20 major institutional shareholders have strong reservations about the deal. The fund holds that Suez shares are worth €40 apiece, almost €10 more than the current offer. Under the present terms of the deal, Suez shareholders would receive one Gaz de France share for each of their own shares. Major Belgian shareholder Albert Frère, who owns 8% of Suez through his holding company Groupe Bruxelles Lambert, suggested last week that an increase in the extraordinary dividend, €1 per share according to February’s proposal, may be in order.

Suez spokesperson Guy Dellicour said: "We are going to work step by step. We have said that we will be doing this merger by the end of the year and we are on the right track. The next step is the Commission decision. Then we will talk about shareholder issues at the general assembly at the end of this year."

The European Commision could present more obstacles. The deadline for a decision by EU anti-trust regulators has now been brought forward to 17 November. Both companies presented the Commission last month (20 September) with detailed concessions aimed at making the €72 billion merger more palatable. Regulators’ delays in reaching a decision suggest complex internal deliberations within the Commission.

This week it was reported that the Belgian government was considering forcing Suez to sell some of its seven nuclear plants. During talks with Suez, Belgium also mooted the possibility of a tax on Electrabel that could amount to €100 million. It also emerged that French President Jacques Chirac has promised Belgium a golden share in the merged entity, a move that could require a change in French law and which could possibly invite further scrutiny from the Commission.

Suez and Gaz de France (GdF) this week cleared a major hurdle that lay in the path of their plans to merge, when the French parliament voted in favour of cutting the state’s stake in GdF. But there is still shareholder opposition to the merger and EU regulators to be satisfied.