GDF, Suez adopt new terms for giant energy merger

Gaz de France and Suez on Monday 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 one, 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% of its environment activities — valued by analysts at €18-million to €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 ($122,9-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% 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%” in GDF Suez, compared with around 80% currently.

Gaz de France and Suez will hold a news conference at 12.30pm GMT. Suez head Gerard Mestrallet will become chairperson and chief executive of the new group, with GDF chief Jean-Francois Cirelli set to become the new group’s vice-chairperson.

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

Sarkozy talks

The deal is a new version of a plan announced by former Prime Minister Dominique de Villepin in early 2006 to prevent a foreign takeover of Suez, while beefing up GDF’s power assets.

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 2006, 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% of Suez, would buy further into the environment business, allowing Suez to claim that it and its partners retained 48% of it in total. – Reuters

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