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Introduction A Brief History -Gaz de France -Suez
Introduction
The Merger Corporate Governance Issues Conclusion
On February 25th 2006, Gaz de France and Suez announced the surprising merger between the two energy groups. One of the reasons claimed for this merger, was to counter an unfriendly takeover of Suez by Enel, an Italian energy group. This announcement was greeted with much concern and anger not only from the left-wing parties in France, but Italy and Belgium as well.
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Introduction A Brief History -Gaz de France -Suez The Merger Corporate Governance Issues Conclusion
Gaz de France Gaz de France or GDF specializes in the logistics and services concerning natural gas. It was created after World War II with the law of nationalization of electricity and gas issued on April 8th 1946, and henceforth GDF became a state-owned company. GDF became a group and an energy giant, owning parts of or entire subsidiaries all around the world including North America, Europe, Africa and India. Authorized by the law approved on August 9th 2004, in 2005 the group GDF became incorporated but with only 30% of its shares privatized.
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Introduction A Brief History -Gaz de France -Suez The Merger Corporate Governance Issues Conclusion
Suez Suez is one of the oldest multinational corporations in the world, dating back to 1858, created by Ferdinand de Lesseps as La Compagnie universelle du canal maritime de Suez, in order to construct and profit from the Suez Canal, inaugurated in 1869. After the Canal's nationalization in 1956 by Nasser, the company's name changes to Compagnie financière de Suez in 1958 and starts its reconversion by diversifying its activities in different economic sectors. After much restructuring, mergers, nationalization in 1982, reprivatization in 1987, the company becomes Suez, a group with activities in the following sectors: -Energy (gas, electricity, LNG...) -Environment (water, waste...)
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Introduction A Brief History -Gaz de France -Suez The Merger Corporate Governance Issues Conclusion
The Merger The merger between these two energy groups would have many consequences: -The new group, with a turnover of 64€ billion and a stock market capitalization of 70€ billion, would become the second largest energy group in Europe, after EON, the German energy group. -The new group would have antitrust issues in the Belgian market, considering that the new merged group would have 90% of the market. -The French government, currently holding more than 70% of GDF shares, would only own 34% of the merged company's shares due to the different turnovers of the two companies. This would imply a change of the law concerning GDF and therefore privatizing the company.
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Introduction A Brief History -Gaz de France -Suez The Merger Corporate Governance Issues Conclusion
The Merger These consequences obviously raised much concern and opposition from different parties: -Italy's Enel at first joined with Veolia, later by French billionaire François Pinault, who were jointly planning to acquire Suez, accused France of protectionism. -EU competition commission declared that concessions, and the sales of part of the energy utilities owned in Belgium would have to take place in order to ensure fair competition. -The French Unions along with left-wing parties and the right-wing party UMP lead by Nicolas Sarkozy, firmly reacted against the merger, fearing lay offs due to the merger.
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Introduction A Brief History -Gaz de France -Suez The Merger Corporate Governance Issues Influence of Politics Conclusion
The Merger A brief summary of the merger's calender: -Feb 25th 2006: GDF Board announces its plan to merge with Suez. -Sept 25th: French National Assembly and Senate approve the privatization. Both approvals were done after a heated discussion among political parties. -Oct 30th: both companies unveil merged company's structure, with Gerard Mestrallet, Suez's current Chairman and CEO, becoming Chairman and CEO of the merged company. -Nov 14th: EU commission agrees on the merger after the companies offered extensive remedies concerning Belgium's energy market.
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Introduction A Brief History -Gaz de France -Suez The Merger Corporate Governance Issues Influence of Politics Conclusion
The Merger -Nov 22nd: French court postpones to 2007 a Board meeting scheduled on the same day, on the account that GDF workers had not been adequately informed about the merger. The Board meeting would have decided the terms of the merger and close the deal. This delay implies that all merger documents will have to be updated on a full year basis, pushing the meeting to at least February. -Nov 30th: French Constitutional Council rules that the merger may not take place till after July 1st 2007, when the energy market is liberalized according to EU regulations. This decision implies that the merger will take place after the French presidential elections in April, putting the merger further into doubt.
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Introduction A Brief History -Gaz de France -Suez The Merger Corporate Governance Issues Conclusion
Corporate Governance Issues The merger presents a principle-agent problem, along with stakeholder and shareholder problems: -Even though the French government would own 34% of the shares, it would have a “golden share”. -The Board of GDF is 1/3 government appointed, but how many would sit in the new Board, considering that the new Board will be equally distributed? Gerard Mestrallet would be Chairman and CEO, with Jean-François Cirelli, Chairman and CEO of GDF, as second in charge, will there be a conflict of interests? -Shareholders of Suez are not yet satisfied with the merger deal, demanding more dividends, or calling out the merger. -1/3 of GDF Board members, are employee representatives. All of them are Union spokesmen, however recent polls show that only 9.1% of employees in France are unionized. 9
Introduction A Brief History -Gaz de France -Suez
Conclusion
The Merger Corporate Governance Issues Conclusion
The merger has wrought much political tension to France. Not only many parties are against it, but the Unions as well, and their influence has managed to considerably delay the merger, even jeopardizing the deal. Most analysts now believe that the merger is “in the hands of the French”, since it would only be effective after the presidential elections, and popular socialist candidate Ségolène Royal has made it clear that she is against the privatization of GDF.
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