France launches new GDF-Suez utility merger plan

PARIS, Sept 3 Sun Sep 2, 2007 6:56pm EDT

PARIS, Sept 3 (Reuters) - France prepared on Monday to announce a giant energy merger between Suez and state-controlled Gaz de France after President Nicolas Sarkozy stepped in to prevent the deal collapsing, risking a clash with unions.

The boards of both companies met late on Sunday and at least one of them backed the deal, hammered out in government offices over the weekend, after Sarkozy put pressure on Suez to abandon the majority of its water and waste assets and focus on energy.

The companies have a combined value of 90 billion euros ($123 billion) before any spin-off of Suez environmental assets.

A source close to the GDF board said the state-controlled firm had adopted the deal, which includes its own privatisation, a measure strongly opposed by unions and opposition Socialists.

The outcome of a Suez board meeting earlier on Sunday was less clear, but the GDF vote implied a green light from Suez.

A press release was scheduled for 0600 GMT with a news conference later on Monday, at a time to be confirmed.

The deal is a new version of a plan announced by former Prime Minister Dominique de Villepin in early 2006 to prevent a foreign takeover of Suez, while beefing up GDF's power assets.

Sarkozy, elected in May on a programme of economic reforms and an advocate of a hands-on industrial policy, held meetings on Saturday to smooth a deal but failed to impress unions who accused him of abandoning earlier pledges to keep GDF public.

Under the new deal, Suez will spin off some 65 percent of its water and waste assets, valued by analysts at 18-20 billion euros, to slim down and preserve a politically acceptable merger of equals with the smaller GDF, sources close to the talks said.

The government, which owns 80 percent of GDF, will maintain significantly more than a blocking minority of 34 percent in the new company, Finance Minister Christine Lagarde said on Sunday.

The company will be called GDF-Suez, a Sarkozy aide said.

A CGT union source said after meeting Sarkozy the government would keep a stake of 40 percent in the new entity. As finance minister in 2005, he had ruled out dropping below 70 percent.

A key question for investors will be the share exchange parity to be used in bringing Suez LYOE.PA together with GDF GAZ.PA to forge Europe's third largest energy utility.

Under the original merger plan, Suez would have merged with Gaz de France on the basis of equals.

Since then, investors have driven up the value of Suez relative to GDF, weighing on the government's shareholding in the new group and raising the prospect of another row over cash compensation to Suez shareholders just as GDF is privatised.

Analysts calculate Suez shareholders could now receive 0.8 to 0.85 of a Gaz de France share, plus a stake in the newly created vehicle containing two-thirds of Suez environmental assets. This will be listed on the stock exchange.

A union source said Credit Agricole bank and state-owned firms Areva and CDC, which between them own 8.4 percent of Suez, would buy further into the environmental business, allowing Suez to claim that it and its partners retained 48 percent of it.

* France salvages giant energy merger [nL02643901]

* FACTBOX-Details on Suez, GDF [ID:nL02668175]

* CHRONOLOGY-Key dates in merger [ID:nL02572501]

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