The attempt to create another French national energy champion through the merger of Gaz de France and Franco-Belgian power and water company Suez has started a political war with Italy which brings into the spotlight once again France’s failure to open up its markets to competition from other European energy businesses.
Italian outrage has been inflamed by France’s attempts to thwart a possible hostile bid for Suez by Italian utility Enel.
In response Italian politicians have been mounting a political offensive which started in February with talks between Giulio Tremonti, Italy’s finance minister, and Neelie Kroes and Charlie McCreevy, respectively EU competition chief and internal market commissioner. Their aim was to persuade the EU’s regulatory bodies to foil the French government’s attempt to block a counter bid for Suez by Enel.
Other Italian politicans soon waded in. Franco Frattini, the Italian vice-president of the European Commission, said that the deal, while not violating EU law, undermined efforts to create a viable single market across Europe and was “a blow to the spirit of the common European market.” Silvio Berlusconi, Italy’s prime minister, called on the European Commission to intervene, while Romano Prodi, the opposition leader standing against Mr Berlusconi in April’s election, said that if elected he would block French companies from buying in Italy in retaliation for France’s failure to open its markets.
Rome’s campaign coincided with efforts by GdF and Suez to resolve differences over governance issues and to persuade French unions to accept the de facto privatisation of GdF, which is 80 % state-owned. It is these discussions that have forced GdF and Suez to postpone announcing details of the deal to create what would become Europe’s second largest energy group after EdF.
Some details of what amounts to a takeover of Suez by GdF have become known. GdF is offering one of its shares for every Suez share, leaving the gas group’s shareholders with about 43 % of the enlarged group. Suez is paying a 1 euro-a-share special dividend before the merger takes effect, a gesture to investors who had hoped for a higher offer from a rival bid. The deal values Suez shares at about 32 euros each.
Some major shareholders have suggested that the terms of the offer undervalued their Suez shares by as much as a third of their actual value, and that undue interference by a govenment that has declared itself highly supportive of the deal has made it more favourable to the Gaz de France shareholders.
Indirect talks between Gaz de France and Enel on the possibility of selling GdF assets in connection with the acquisition have ended ‘for now,’ according to a GdF spokeswoman on 21 March. At the same time Suez said its indirect talks on possible asset sales to Enel had also ended. It is not clear whether or not the two events are connected, as both companies have refused to comment further or to say whether or not any agreement has been reached.
French Finance Minister Thierry Breton had earlier said that asset sales would ‘certainly’ take place if a GdF-Suez merger took place.
Belgian officials also have called for the two companies to divest assets in Belgium – perhaps Suez-owned utility Electrabel – to ensure competition in that market.
The GDF spokeswoman said the talks with Enel occurred through an intermediary that she declined to identify. She also declined to say if any agreement had been reached.
As both GDF and Suez declined to discuss the matter further, it was not immediately clear if their talks with Enel were separate or joint, or if the same intermediary was involved if they were separate.
The GDF spokeswoman, like the Suez spokesman, did not comment on whether talks had been held with any other parties on possible asset sales.
However, it is understood that Gérard Mestrallet, executive chairman of Suez, will head the combined group, while Jean-François Cirelli, his counterpart at GdF, will be his deputy.
Julian Gould, fund manager at Schroder Investment Management, which holds more then 1.2 per cent of Suez, said a combination of GdF and Suez made sense. “It has very strong industrial and financial logic and could clearly create significant value for shareholders,” he said.
However, he added: “We believe the current merger terms do not fully reflect the value of Suez as a stand-alone company.”