Gaz de France and Suez agree merger

The boards of French utilities Gaz de France and Suez have reached an agreement to merge. The merger, in negotiation since February 2006, will create the world’s third largest utility company, GDF Suez, with market capitalisation of around €90 billion and revenues of €72 billion.

A joint statement from the companies indicated that the merger will close in early 2008, with the French government retaining a 35% stake in the merged entity. It currently holds 80% of Gaz de France. Water and waste management division Suez Environment will be spun off as an independent entity as part of the deal.

A statement from asset management company Knight Vinke points out that the French government may not be optimising potential benefits from the deal. “GDF has very significant unused borrowing capacity and, once the environment division has been spun off, could acquire Suez for cash, thereby leaving the French state with a holding of over 70% in GDF Suez,” it says. “This would result in a very significant profit for the French Treasury.”

French president Nikolas Sarkozy provided the final impetus for the protracted deal last week when he gave his support to the merger, having indicated during his election campaign that he might prevent it. The merger was instigated to ward off interest in Suez from Italian utility Enel.

Gérard Mestrallet, chairman and chief executive officer of Suez, will run the new group jointly with Jean-François Cirelli, Gaz de France vice-chairman and president.