July 16, 2008 / 9:21 AM / 12 years ago

Suez, GDF shareholders back birth of energy giant

PARIS (Reuters) - Suez LYOE.PA and Gaz de France GAZ.PA shareholders on Wednesday overwhelmingly approved a long-delayed 100 billion euro ($159.5 billion) merger plan to create Europe’s second-largest electricity and gas group.

French utilities group Suez's Chief Executive Gerard Mestrallet is seen on a giant screen as he delivers a speech during a shareholder meeting as part of the Suez - Gaz de France merger in La Defense near Paris, July 16, 2008. REUTERS/Vincent Kessler

The GDF Suez group — the union of Europe’s largest gas supplier and one of the world’s biggest electricity producers — will have combined sales of 74 billion euros, and vie for the rank of Europe’s second biggest utility with Germany’s E.ON EONG.DE, behind French power giant EDF (EDF.PA).

“Shareholders have voted today by more than 99 percent. It is a success but also a challenge because we have to deliver now and this is our first priority,” Suez Chief Executive Gerard Mestrallet told reporters after 99.6 percent of the votes from shareholders present or represented backed the merger.

Gaz de France shareholders, among which the French state with an 80 percent stake, backed it at 99.9 percent.

A few individual shareholders objected to the logic of the merger, which one at the Suez meeting called “the alliance of a right arm and a left leg.”

Before the vote — the final shareholder meeting of a company whose history stretches back to the building of the Suez Canal — Mestrallet had said the merger was an opportunity to create a key energy player, citing commercial, industrial and geographical synergies between the two companies.

“This is what will allow us to speed up our industrial development,” he said, adding the group would put a focus on nuclear energy and offering gas and electricity combinations.

Gaz de France CEO Jean-Francois Cirelli told shareholders the deal would give GDF Suez the financial means to develop its business, and help Europe reduce its dependence on gas imports.

The votes conclude a 2-1/2 year merger saga marked by bid threats from Italy, a political dispute over privatization in France, union opposition and bickering over the financial terms.

They seal a tie-up engineered by the French government in 2006 to fend off the threat of a bid for Suez from Italy’s Enel (ENEI.MI), and create a global giant at a time when oil prices have become a central issue for governments and consumers.

Luc Chatel, a government spokesman, said the merger, effective on July 22, was good news for France and consumers.

“In a market pegged to oil prices, it is important to secure your supplies and the bigger you are, the more secure your supplies will be... the better the prices you can negotiate.”

SIZE MATTERS

Gaz de France and Suez have said they aim to build up their gas production business, and to increase their electricity production capacity to 100 gigawatts (GW) by 2013, from 65 GW now, through new nuclear power and renewable energy projects.

Mestrallet has said GDF Suez may bid for one or two new-generation EPR nuclear reactors in Britain, and would decide at the start of 2009 whether to take part in the construction of a second EPR in France — where it would compete with EDF.

“Production, supply and durable development challenges in the energy sector imply a need for investments,” Cirelli said.

“It is vital to invest in electricity plants to replace ageing ones, and create new capacities, build new gas distribution networks. It is vital to invest in liquefied natural gas (LNG), in LNG tankers, in LNG terminals.

“To be able to make such investments, the size of the company, and the strength of its balance sheet, matter.”

GDF Suez will not need acquisitions to meet a 17-billion euro core earnings targets in 2010, Mestrallet said, adding though it would consider mid-size deals if opportunities arose.

Meanwhile, Cirelli reiterated that the group would not seek to buy nuclear plants operator British Energy BGY.L.

Suez and Gaz de France stocks gained around 3 percent each, outpacing France's blue-chip market .FCHI. They have gained 35 to 40 percent since the merger was first unveiled in February 2006 -- three times their sector's gain.

The politically charged deal was delayed by disputes over valuation and control before final terms were set in September 2007, on the basis of 21 Gaz de France shares for 22 Suez shares and the spin-off of 65 percent of Suez’s water and waste arm.

President Nicolas Sarkozy, who as economy minister had vowed not to privatize Gaz de France, encouraged Mestrallet to abandon most of Suez’s historic water business to slim the group down and make a merger of equals with Gaz de France possible.

On Wednesday, 99.7 percent of represented Suez shareholders adopted a measure under which they will receive one Suez Environnement share for every four Suez shares they own.

Mestrallet said the spin off of Suez Environnement, the world’s second-largest water group after Veolia (VIE.PA), will enhance its visibility. The stock will start trading on July 22.

Additional reporting by Benjamin Mallet and Astrid Wendlandt; Editing by Quentin Bryar, Paul Bolding

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