Como se combate o populismo? "Com eleições", responde Fukuyama

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Suez to Merge With GDF to Fend Off Possible Enel Bid (Update2)

Feb. 26 (Bloomberg) -- Suez SA and Gaz de France SA said they plan to merge in a combination that will create the world's second-biggest power and gas supplier and fend off a possible hostile bid for Suez by Italy's Enel SpA.

The two Paris-based utilities, which have a combined market value of $85.5 billion, said in statements sent after board meetings last night that their respective chairmen and chief executive officers, Gerard Mestrallet and Jean-Francois Cirelli, are leading the talks. The companies didn't give other details.

``This transaction seems inspired by protectionist sentiment, to prevent Suez from falling into foreign hands or being broken up by a less friendly suitor,'' said Hendrik Van Brevoort, who helps manage $6 billion at Putnam Investment in London.

European Union steps to open national energy markets to competition have prompted a flurry of cross-border takeovers and bids. They've also prompted efforts to create national champions large enough to repel such offers. Enel said Feb. 21 it was studying Suez's Electrabel unit as an expansion opportunity. The same day, German power utility E.ON AG offered 29.1 billion euros ($34.6 billion) in cash for Spain's Endesa SA.

Energy Independence

French Prime Minister Dominique de Villepin said yesterday that the two companies planned to merge to preserve France's energy independence. His statement followed a meeting with Cirelli and Mestrallet.

``Taking into account the strategic importance of energy, the merger of Gaz de France and Suez seems the most appropriate track,'' Villepin said in an e-mailed statement. ``With this merger, we have the ambition to create one of the largest global energy groups.'' He didn't disclose any terms.

Suez is the world's second-largest water company. Gaz de France, 80 percent owned by the French government, is Europe's fourth-largest publicly traded utility. Suez shares have risen 14 percent since Enel, Italy's biggest utility, expressed its interest in Electrabel, Belgium's No. 1 power company.

``For several months,'' Suez's board ``has encouraged its chairman and CEO to explore the interest of a strategic regrouping with Gaz de France, combining the two groups' assets to create a world-scale, European leader in energy and environment,'' Suez said in the statement. The board of directors consider that ``combining the two groups would create the greatest value for all shareholders.''

Russian Gas

European utilities were involved in 78 percent of the $236 billion of power and gas takeovers announced worldwide last year, according to data compiled by Bloomberg. Record oil, gas and power prices have boosted utility profits, allowing them to expand abroad as markets open up to competition. They are also investing in gas and power-production facilities as they try to reduce dependence on other countries and avoid the rising wholesale market.

Gaz de France and Suez said on Jan. 26 they planned to build two gas-fired power stations in France together. Gaz de France, the world's fourth-largest buyer of natural gas, said in January it wanted to reduce its dependence on Russian gas after Russia's OAO Gazprom cut off natural gas supplies to Ukraine on Jan. 1. Gazprom accounts for 25 percent of Gaz de France's long- term contracts.

`Bulking Up'

Gaz de France and Suez ``are bulking up in the face of insecurity of supply over gas imports from potentially unpredictable sources in regions outside Europe,'' Putnam's Van Brevoort said.

French Finance Minister Thierry Breton said today in newspaper Le Journal du Dimanche that the state will keep at least a 34 percent stake in the combined company to keep a blocking minority and shield it from hostile takeovers. The newspaper also said more details of the deal may be announced tomorrow.

A combination of Suez and Gaz de France would create the world's second-largest utility by market value behind Electricite de France SA, according to Bloomberg data. It would overtake E.ON, which last week announced a bid for Endesa, topping a Spanish government-approved offer from Barcelona-based Gas Natural SDG SA.

Gas and Power

Suez, France's second-largest utility, has expanded in power and gas to benefit from record commodity prices in Europe. Last year, it became sole owner of Electrabel when it purchased the 50 percent it didn't already own.

Suez, which has a market value of 43.1 billion euros, said Feb. 1 that 2005 sales rose 9 percent to 41.5 billion euros on rising demand for natural gas and higher electricity prices in Europe.

An increase in Electrabel's selling price of 1 euro per megawatt-hour translates into a 1.9 percent jump in Suez's earnings before interest, taxes, depreciation and amortization, according to a note published by UBS AG on Jan. 26.

Gaz de France has said it wants to invest in electricity before the opening of Europe's gas and power markets to full competition next year. The company sold shares to investors for the first time in July 2005. Lazard Ltd. and Merrill Lynch & Co. are advising Gaz de France on the merger, said Lazard spokeswoman Estelle Guillot-Tantay.

Enel Interest

Enel, a former state monopoly that is forbidden from selling more than half of Italy's electricity, must expand outside of Italy to increase sales and profits. The company said yesterday it's still interested in Suez.

Newspaper Corriere della Sera today quoted Enel Chief Executive Fulvio Conti as saying that ``it seems like the funeral of the European market. Italy has to react. It's as if the Italian government forced Eni to take over Fiat to defend it from a takeover bid by Renault.''

After news of Enel's possible interest in Suez became public, de Villepin telephoned Italian counterpart Silvio Berlusconi to express his opposition to any Suez takeover, newspaper La Stampa reported on Feb. 24. The French politician would consider it an attack on France, the report said.

``The government's responsibility is to guarantee investment and production capacities'' de Villepin said in yesterday's statement. ``The independence in power supply of our country is a strategic stake for France.''

Bid Hampered

Europe's top regulators warned Spain on Feb. 22 against trying to block a $35 billion takeover of Endesa by E.ON as Spanish government leaders stiffened their opposition to foreign ownership of utilities.

The European Commission threatened legal action against Spain for seeking to keep its power and gas industry in national hands, a day after E.ON announced the bid, the biggest ever in the utility industry. Spanish Prime Minister Jose Luis Rodriguez Zapatero called Endesa ``strategic'' for the country.

Italian Finance Minister Giulio Tremonti yesterday also called for an end to such practices following the merger announcement.

``The race for the European states to build protective barriers should be stopped,'' Tremonti was reported by agency Ansa as telling reporters. A spokesman confirmed the comments. ``We still have time. If it continues like this risks will increase.''

Spain on Feb. 24 approved measures designed to hamper E.ON's bid. The measures would extend the powers of the country's energy regulator to give it the ability to veto or submit to conditions any takeover of a Spanish utility to protect the government's ``general interest'' in the energy sector.

The French parliament will have to approve the merger of Suez and Gaz de France by allowing the government to lower its stake below 70 percent in Gaz de France.

World's Biggest Utility Companies by Market Value (Table):


Company Market Cap Country
USD Bln.
1. Electricite de France SA 95 France
2. E.ON AG 77 Germany
3. Enel SpA 52 Italy
4. Suez SA 51 France
5. RWE AG 48 Germany
6. Exelon Corp. 38 U.S.
7. Endesa SA 35 Spain
8. Tokyo Electric Power Co. Inc. 34 Japan
9. Gaz de France SA 34 France
10. Iberdrola SA 29 Spain
11. RAO Unified Energy Systems 29 Russia
12. National Grid Plc 27 U.K.
13. Korea Electric Power Corp. 27 Korea
14. Duke Energy Corp. 26 U.S.
15. Dominion Resources Inc. 25 U.S.
16. Southern Co. 25 U.S.
17. TXU Corp. 23 U.S.
18. Veolia Environnement 21 France