GDF, Suez unveil government-backed deal to fend off Enel
PARIS – State-backed Gaz de France SA is buying energy and water supplier Suez SA for more than $46 billion in cash and stock, seeking to fend off a possible bid for Suez by Italy’s biggest power company Enel.The deal, which would create a major new energy and environmental services company with a market capitalization of about $86 billion, is the latest in a series of attempts by European governments to defend what they increasingly see as national industries.It was presented in detail Monday as an answer to growing energy security concerns that France shares with many other governments – particularly European neighbors affected by Russia’s move last month to turn off Ukraine’s gas.But Italy saw a deeper kind of nationalism in the rushed French response to Enel SPA’s interest in Suez, made public by the Italian company only last Wednesday.The Italian government condemned France’s “protectionist” move and called on the European Union to investigate.The proposed GDF-Suez combination also ushers in the politically sensitive privatization of GDF. But the legal structure of the deal – in which state-controlled GDF would buy the much larger Suez – may help France’s conservative government to sell the deal to voters as elections near.Finance Minister Thierry Breton opened talks with trade union officials Monday in an attempt to answer their objections to the merger, which would reduce the government’s stake in the combined company to about 34 percent from about 80 percent of GDF today. The government had promised to maintain control of GDF when it sold a 20 percent stake in the company in a public offering last year despite strong left-wing opposition.The deal would generate about 500 million euros ($595 million) in annual savings without job losses, GDF and Suez pledged, creating a company with sales of 64 billion euros ($76.13 billion) and Europe’s largest gas transport and distribution network.Under its terms, Suez would pay a special dividend of one euro ($1.19) per share to its shareholders, who would then receive one GDF shares for each Suez share. The offer values Suez at 39.14 billion euros ($46.6 billion), 9.1 percent below its market capitalization at Friday’s close.Prime Minister Villepin first announced the plan Saturday, prompting Italian Industry Minister Claudio Scajola to cancel a visit to Paris on Monday. Economy Minister Giulio Tremonti also compared the situation to pre-World War I tensions. “Then, no one wanted war, but war happened,” he told Turin daily La Stampa.But Italy’s objections could raise some eyebrows – especially in the Netherlands. Former Bank of Italy Governor Antonio Fazio resigned in December after it emerged that he intervened to favor one Italian bank’s bid for another, over an offer from Dutch rival ABN Amro Holding NV.Banking and energy are among industries where a surge in mergers and acquisitions has been accompanied by a wave of protectionism in Europe. Energy consolidation is also propelled by EU-wide market liberalization but is unnerving some governments.In steel, the EU has warned France and Luxembourg against intervening to thwart Mittal Steel Co.’s unsolicited bid for Arcelor SA – long upheld as a paragon of European industrial cooperation and know-how. Political hostility to Mittal Steel – a European company with an Indian-born controlling shareholder, Chairman and CEO Lakshmi Mittal – has prompted charges of racism from the Indian government.EU officials have threatened legal action against Warsaw for its stated determination to block a bid for Polish bank BPH by Italy’s Unicredit SPA, and France received warnings over a decree allowing the government to veto foreign takeovers in sectors deemed strategic – including casinos.Brussels also locked horns with Spain last week over its plans to block a bid of 29.1 billion euros ($34.6 billion) for power company Endesa SA by Germany’s E.On AG, announced the day before Enel flagged its interest in Suez.EU spokesman Johannes Laitenberger declined to comment on the GDF-Suez deal but said the emergence of industrial champions should be “the result of their strength on the market and not the consequence of political intervention.”While the GDF-Suez plan is government backed, analysts say that it does have a strong industrial logic.France is scheduled to embrace full electricity market liberalization on July 1, 2007, and the new GDF-Suez could be well placed to offer bundled power and gas contracts to customers.”At first, this deal appears defensive. But the merger is also strategic: It brings together two companies with complementary skills and positions across Europe,” Exane BNP Paribas said in a note to investors.And if Enel were to follow through with a counterbid, it would ultimately be Suez shareholders that decide between a deal with state-owned GDF and a rival offer from Enel – one-third owned by the Italian government. A spokesman for Enel declined to comment.GDF shares closed 2.8 percent lower at 28.97 euros ($34.46) in Paris. Shares in Suez, which had risen 12 percent after Enel announced its interest in the company, ended 5.8 percent lower at 31.93 euros ($37.98).