France salvages giant energy merger

By Marie Maitre and Swaha Pattanaik

PARIS (Reuters) - France appeared to have removed a threat to one of Europe's largest energy deals on Sunday after the boards of Suez and Gaz de France voted on a politically charged merger delayed by disputes over strategy and control.

Gaz de France's board backed a new deal, a source close to the board said. There was no word on the outcome of an earlier board meeting at Suez, but sources agreed it was highly unlikely that GDF GAZ.PA would have voted on a deal if Suez had walked away.

A press release was scheduled for 0600 GMT (2 a.m. EDT) on Monday.

The merger of companies with a combined value of 90 billion euros ($123 billion) was pushed forward 18 months ago by a previous conservative government to prevent a foreign takeover of Suez (LYOE.PA: Quote, Profile, Research, Stock Buzz), the company that built the Suez Canal.

But a host of problems caused by public doubts over the privatization of GDF, regulatory conditions, paralysis during recent French elections and, finally, a messy jigsaw puzzle over financial valuations almost scuppered the huge deal.

Salvaging the union would forge an energy giant in Europe's top three behind French state power firm EDF and Germany's E.ON.

A source close to the talks said Suez had backed down over control of its historic water and waste assets following the intervention of French President Nicolas Sarkozy, who laid down terms for the merger in a speech last week.

The government wants Suez to sell these assets, valued at 18 billion to 20 billion euros, to slim down the company and ensure a politically acceptable "merger of equals" with the smaller GDF.