Following 18 months of negotiations, French energy giants Suez and Gaz de France have finally agreed on a merger deal that will create one of the top three listed utilities worldwide, with a market capitalization of approximately E90 billion and revenues of E72 billion. It is hoped that the new company, GDF Suez, will be created as soon as possible, in 2008.
<p>In a joint press release, Suez and GDF said that their respective boards and major shareholders were backing the deal. The French government, which will directly hold over 35% of the capital of GDF Suez, also supports the merger. The deal will involve an exchange of 21 GDF shares for 22 Suez shares and the absorption of Suez by GDF. <br /><br />The merger will also involve the spin-off of 65% of Suez's environmental unit to its shareholders. This will be carried out via an initial public offering at the same time as the merger. Following the transaction, GDF Suez and the main Suez shareholders will hold 35% and about 12% of the waste management and water activities, respectively.<br /><br />According to Reuters, the unit's spin-off was pushed by French president Nicolas Sarkozy, despite earlier claims by Gerard Mestrallet, chairman of Suez, that the unit was part of his firm's core operations. The industry believes that the divestiture is necessary to align Suez's size with its smaller counterpart GDF, in order to allow a merger of equals.<br /><br />Reuters also reported that the French government's heavy participation in the new company, which will see it hold a blocking minority stake, is proving a cause for concern. However, Reuters also said that others fear that the French government's stake of 35% in GDF Suez, compared to its current 80% interest in GDF, is a move towards GDF's privatization. <br /><br />Suez and GDF said that the consolidation of their respective activities would create a leading gas and electricity player, with the ability to tackle any future major energy challenges, such as security of energy supplies in Europe, reducing carbon dioxide emissions, and the development of large-scale energy infrastructures, including in gas and renewable energies.<br /><br />The companies added that the tie-up makes sense in both geographical and business terms, and will create the number one buyer and seller of gas in Europe and the number one gas transmission and distribution network operator in Europe. The newly created company will also have a strong footprint in the US, Brazil and the Middle East.<br /><br />GDF and Suez expect to see operational synergies of about E1 billion per year by 2013, including approximately E400 million by 2010, with the potential for further synergies in the future. The firms said that their shareholders would benefit significantly from the growth potential of GDF Suez.<br /><br />The new group will be structured around five business units: infrastructures, global gas and LNG, energy France, energy Europe, and international and energy services. In France, energy sales will be carried out under the Gaz de France brand.</p>