Suez-GDF agree to merge

After several rounds of uncertainty shrouds, the long-awaited merger of Suez, the French utility, with the state-controlled outfit Gaz de France finally took place Sunday. The two European energy giants said they have agreed to merge their gas and electricity operations, in a move to create the world's third-biggest utility.

The announcement came after the boards of both companies unanimously gave their nod to the proposed merger, marking an end to 18 months of highly-charged negotiations.

The new company, called GdF Suez, will be one of the World’s top three listed utilities, and will be led by Suez Chief Executive Officer Gerard Mestrallet, with Gaz de France's Jean-Francois Cirelli as Vice Chairman.

Announcing the new terms for their long-awaited merger deal, the two companies said in a joint press release that Suez shareholders will receive 21 Gaz de France shares for every 22 Suez shares held.

Under the terms of the merger deal, the French State government that currently owns 80 percent of Gaz de France will hold 35 percent of GdF Suez.

Once the merger completes, GdF Suez will become one of Europe's largest energy conglomerates along with Russia's state-run Gazprom, Electricite de France and Germany's EON, with a combined market value of $123.3 billion and revenues of $98.7 billion.

The two companies hope that the transaction to create GDF Suez will be completed "as early as possible" in 2008. "Recent developments in the energy sector reinforced the strategic and industrial logic behind the transaction," and it will help the companies to create a new European energy leader, the companies said.

The merger deal will also see Suez to spin off its water and waste businesses, which had sales of $15.62 billion in 2006. In order to enable the merged Group focus on the energy market, Suez decided to spin off 65% of its environment activities in an initial public offering.

The newly created Suez GdF will hold 35-percent of the spin-off unit, while another 12 percent will be owned by a coalition of shareholders including banking giant Credit Agricole and state-run nuclear manufacturer Areva.

Spinning off Suez's water and waste division brings the size of the Paris- based companies closer together.

Meanwhile, the French Finance Ministry has welcomed the merger of state-owned Gaz de France and French-Belgian utility company Suez. "The new entity will boost energy supply safety, notably in gas, of France and furthermore of Europe," the ministry said.

Although the boards of two companies have given their stamp of approval for the proposed merger, but it still requires the approval of the European Commission, the ministry added.

The merger plan was first announced in February 2006. The merger plan has been entrapped in political, legal and financial hurdles for 18 months, and was delayed by disagreements over valuation and control.