Firms agree merger to create world energy giant

Talks begin today towards sealing a controversial merger deal between state-owned gas producer Gaz de France and utility company Suez that would create a world energy leader and block a hostile bid from Italy.

The boards of both companies have approved the principle of the merger, announced this weekend by France’s prime minister at the weekend.

The likely scenario would be the purchase by Gaz de France – currently 80% owned by the state – of Suez, according to news reports.

The merger plan would block a potential hostile bid from Italy’s Enel SpA. Budget minister Jean-Francois Cope, speaking on Radio J, described the planned deal as “economic patriotism” that would generate jobs.

Economy minister Thierry Breton will meet union representatives today in the first round of what is likely to be a series of consultations. Suez chairman Gerard Mestrallet and Gaz de France chief executive Jean-Francois Cirelli would be present, a ministry spokesman said.

“Talks are advancing fast”, said a Gaz de France official.

The French government faces political and union criticism over the merger project, which would amount to a further privatisation of the former gas monopoly. Suez, one of the largest electricity providers in Europe through its Electrabel unit in Belgium, is privately held.

However, Breton, in a series of interviews published yesterday, said that the state role in a Suez-GDF merger would not drop below 34% – a blocking minority. Parliament would have to change the law which currently forbids government holdings in state companies to fall below 70%.

Prime minister Dominique de Villepin, in announcing the project, said Suez and Gaz de France, or GDF, had been discussing a deal for months to bring their “close and complementary” activities together in power production and distribution.

“Given the strategic importance of energy, the fusion of Gaz de France and Suez seems today to be the most appropriate path,” Villepin said.

But critics said the merger plan was a rush job to block Italy’s Enel.

In Rome, angry Italian officials warned of a return to protectionism in Europe. Economy minister Giulio Tremonti said that if protective barriers were not removed, Europe risked returning to a domino-effect of nationalism like that seen on the eve of the First World War.

“Then, no one wanted war, but war happened,” he said in comments reported by Turin daily La Stampa. Italy’s Enel had announced on Wednesday that it planned to make acquisitions in France or Spain, with an eye on Suez.

Villepin did not specify which entity would absorb which to form the new company, nor did he discuss the sensitive issue of privatisation.

But France Info radio, quoting sources close to the issue, said Gaz de France would absorb Suez.

The Suez board of directors, which met on Saturday, asked that the merger of the two companies be carried out as quickly as possible, a statement said.

Gaz de France board members also gave the green light, while stressing that the “culture” of the two groups be respected and that the project be one which creates jobs.

In Belgium, home of Suez’s Electrabel unit, Belgian prime minister Guy Verhofstadt gave his cautious blessing, demanding that Suez respect all commitments made last year when it completed buying up shares of the Belgian company.

The leader of France’s opposition Socialist Party, Francois Hollande, said Sunday that the government’s choice to approve the merger was “improvised and rushed” and based on “the excuse of a bid that hasn’t yet been decided”.

But Breton, the economy minister, denied that was the case with an emphatic “no”.

“The two groups were already talking for several weeks,” he told Le Parisien newspaper.

The announcement of the merger does not technically prevent the Italian electricity producer from launching a bid for Suez. But Breton told the weekly Journal du Dimanche that “the size of the new group and the fact that the state holds a participation higher than the minority shelters the company from hostile operations”.

“The new group will remain completely anchored on national territory,” he was quoted as saying.

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