The merger Gaz de France – Suez By Gabriel de Armero – Corporate Governance, EPFL
Table of Contents Introduction................................................................................................................ 3 1. Presentation of the actors...................................................................................... 4 1.1 Gaz de France....................................................................................................................... 4 1.1.a History of Gaz de France:.............................................................................................................. 4 1.1.b Governance of Gaz de France:...................................................................................................... 4
1.2 Suez...................................................................................................................................... 7 1.2.a History of Suez.............................................................................................................................. 7 1.2.b Governance of Suez...................................................................................................................... 8
1.3 Analysis of the individual companies.................................................................................... 11
2. The merger of Gaz de France and Suez............................................................. 12 2.1 The initial situation............................................................................................................... 12 2.2 The path of the merger........................................................................................................ 13
3. Chronology of events........................................................................................... 15 4. The current situation............................................................................................ 16 4.1 The merger stopped............................................................................................................. 16 4.2 The problems behind the merger......................................................................................... 16 4.3 The upcoming events........................................................................................................... 17
Conclusion............................................................................................................... 19 Bibliography............................................................................................................. 20 Appendix.................................................................................................................. 25 I. Gaz de France subsidiaries.................................................................................................... 25 II. Stock price chart of GDF and Suez........................................................................................ 31
Introduction On February the 25th 2006, the Board of Directors of Gaz de France (GDF) announced the future merger with the energy and environment company of Suez, thus marking the possible emergence of the second largest utility group in Europe after the German giant E.ON. This decision was taken as a measure to counter the Italian energy group Enel announcement of the proposal of a bid for Suez. The news was received with much surprise and even anger among the different parties involved, that is to say, the Italian government, the French unions and even the European Commission. The Italian government immediately accused the French government of protectionism demanding the European Commission to act against the merger, while the unions out cried and feared about the future of the employees in a privatized company. However before the €41.2 billion merger can take place, it had to pass through many hurdles not only on the political and the financial level but the corporate one as well. How will the specific corporate governance structures of these two companies, one of them being a state owned and the other being private, affect the outcome of this merger? To try to answer this question, the different aspects of the merger will be analyzed through out this study, starting with a brief background and description of both companies, followed by a detailed outline of the causes and the consequences of the merger and the different problems the merger project has had to face until now, as well as a general chronology of the events after the merger announcement and finishing with the analysis of the current situation.
1. Presentation of the actors 1.1 Gaz de France
1.1.a History of Gaz de France: Gaz de France or GDF is a French company, specializing in the transportation and distribution of natural gas. GDF was born after World War II, at the same time as Eléctricité de France (EDF), with the nationalization law of electricity and gas issued on the 8 th of April of 1946. It was basically created thanks to the merger of quasi totality of the private companies in that sector at the time, and henceforth GDF becomes a state-owned company, under French law. With the increasing use of natural gas over the years, GDF became a group and an energy giant, owning in part or entire subsidiaries all around the world including North America, Europe, Africa and India. (ref: Annex 1). Authorized by the law approved on August 9th 2004, in 2005 the group GDF became incorporated but with only 30% of its shares privatized. The remainder of the shares remains in the power of the state.
1.1.b Governance of Gaz de France: The governance of GDF is structured into a board of directors, a CEO, and the different committees of the board. The current CEO and Chairman of the Board, since 2004, is Jean-François Cirelli. The different committees exist thanks to French law. They allow delegating some of decision making process to these committees, which basically act as advisers. Amongst the important committees of the board, the executive committee should be highlighted as it is responsible for implementing the strategies decided by the Board, and it constitutes GDF's primary management body, but there are many committees such as: •
The Commitments committee: evaluates decisions on investment, acquisition programs, and any financial commitment.
•
The Upstream-Downstream committee: assesses the profits, manages internal sales price for goods and services, and ensures that goals are met.
•
The Infrastructure committee: manages the development of infrastructure for the group, and establishes policy for R&D.
•
The Senior Management committee: oversees the activities, and decides on career development for Senior Managers.
•
The Group Human Resources committee: centralizes the needs of the different divisions, and provides a forum for discussion on the GDF's policy.
•
The Sustainable Development and Ethics committee: establishes the Group's policies concerning environmental issues, sustainable development, quality and the code of ethics applicable to GDF.
The Board is made up of 18 members; 6 representatives from the government, appointed by decree, 6 representatives of the personnel and 6 representatives elected at the Annual General Shareholder's Meeting. Board members are elected for a term of 5 years and they meet at least 8 times a year, but extraordinary meetings can be called if required. “In 2005, the Board met 10 times, with an average member attendance rate of 84.5%. Employee and Government representatives do not receive a director's fee for their participation. The individuals elected by the Annual General Meeting are paid €2,000 per session.”1 The current Board members are the following: The government representatives: •
Paul-Marie Chavanne : - Inspecteur général des finances (French Ministry of Economy and Finances) - General Manager Delegate of the La Poste group - CEO of the Geopost group
•
Christian Frémont : - Prefect of the Provence-Alpes-Côte d'Azur region - Prefect of the Bouches-du-Rhône
•
Clara Gaymard : - Ex CEO of the Invest in France Agency (IFA) - Delegate Ambassador for Foreign Investment
•
Jacques Rapoport : - Inspecteur général des finances (French Ministry of Economy and Finances) - Ministers General Secretary, in charge of Social Affairs
•
Denis Samuel-Lajeunesse : - CEO of the French Government Shareholding Agency of the French Ministry
1
from http://www.gazdefrance.com/EN/public/page.php?iddossier=513
of the Economy, Finance and Industry, Treasury Department. - Member of the Board of Thalès, France Telecom, and Alstom. •
Florence Tordjman : - Administrateur civil hors classe (public employees who guarantee the management and the control of public establishments and administrations) - Subdirector, Gas and Distribution for Fossil Fuel Energies, Energy, and Raw Materials division, Ministry of Economy, Finance and Industry. The personnel representatives:
•
Olivier Barrault - CGT syndicate representative
•
Eric Buttazzoni - CGT syndicate representative
•
Bernard Calbrix - CFDT syndicate representative
•
Yves Ledoux - CGT syndicate representative - Board member of GRTgaz
•
Daniel Rouvery - CFE-CGC syndicate representative
•
Jean-François Lejeune - CGT-FO syndicate representative The elected shareholder's representatives:
•
Jean-François Cirelli - CEO and Chairman of the Board
•
Jean-Louis Beffa - CEO and Chairman of the Board of Saint-Gobain -Vice-Chairman of the Board of BNP Paribas - Chairman of Claude Bernard Participations - Board member of Groupe Bruxelles Lambert, Belgium
•
Aldo Cardoso - Board member of Orange, Rhodia, Accor, Imerys, and Mobistar (Belgium), AXA Investment Managers, Andersen Worldwide, - Censor of Bureau Veritas
•
Guy Dollé - Ex CEO and Chairman of the Board of Arcelor
•
Peter Lehmann - Board Member Northern Ireland Authority for Energy Regulation
•
Philippe Lemoine - CEO and Chairman of the Board of Cofinoga, Banque Sygma, LaSer, and of Lafayette Services - Chairman of the Board of Laser, Galeries Lafayette, and of Echangeur Network - Vice-chairman of BHV's supervisory board
1.2 Suez
1.2.a History of Suez Suez is one of the oldest multinational corporations in the world, dating back to 1858, when Ferdinand de Lesseps created La Compagnie universelle du canal maritime de Suez, in order to construct and profit from the Suez Canal which was inaugurated in 1869. After the Canal's nationalization in 1956 by Nasser, the company changes its name to Compagnie financière de Suez in 1958 and starts its reconversion by diversifying its activities and investments in different economic sectors. After much restructuring, mergers, nationalization in 1982, reprivatization in 1987, the company Suez is adopted and is now multinational group with activities in the following sectors: •
Energy (gas, electricity, LNG liquefied natural gas, and logistics and services related to these energetic resources)
•
Environment (water treatment, water provider, recycling, incineration of waste and waste treatment)
1.2.b Governance of Suez Much like Gaz de France, Suez corporate governance is structured with a CEO, a Board of directors and various sub-committees of the Board. The current CEO and Chairman of the Board since 2001 is Gerard Mestrallet. It also be noted that he is a shareholder, owning more than 33000 shares. Suez's Board sub-committees also help the Board decision making process by delegation of work. However, unlike Gaz de France, Suez's sub-committees are structured a lot more like the basic model of today's company. There are four different subcommittees: •
The Audit Committee
•
The Ethics, Environment and Sustainable Development Committee
•
The Nominations Committee: assesses the progress of employees and recommends the appointment of new directors.
•
The Compensation Committee: responsible for policies, plans and benefits to retain and attract good personnel.
The Board of Suez is made up of 15 members, each member count as a vote, and they are members of the Board for a term of one year, re-electable annually at the General Shareholder's Assembly. The Board meets at least four times a year. Even though the Chairman has a lot of power it must still consult the Board for important decisions; international acquisitions, and most operations involving large amounts of money. The current Board members are the following: •
Gerard Mestrallet -CEO and Chairman of the Board of Suez -Vice Chairman of Aguas -Director of Saint-Gobain, Pargesa Holding SA (Switzerland)
•
Baron Albert Frere -Vice Chairman of Suez -Chairman and Executive director of Groupe Bruxelles Lambert -Chairman of ERBE, Frère-Bourgeois, Financière de la Sambre (Belgium), Stichting Administratiekantoor Frères-Bourgeois (Netherlands) -Vice-Chairman, Executive Director of Pargesa Holding SA (Switzerland)
•
Edmond Alphandery
-Chairman of the Supervisory Board of CNP Assurances, -Chairman of CNP International -Director of Calyon, Icade, (France), Caixa Seguros (Spain), CNP Fineco Vita (Italy) -Chairman of the Centre National des Professions Financières •
Antonio Brufau -Chairman and Chief Executive of Repsol YPF, SA (Spain) -Chairman of YPF, SA (Argentina) and Comupet Madrid 2008, SL (Spain) -Vice-Chairman of Gas Natural SDG, SA (Spain)
•
Rene Carron -Chairman of the Board of Directors of Crédit Agricole SA -Chairman of Caisse Régionale de Crédit Agricole des Savoie, Confédération Internationale de Crédit Agricole “CICA” -Vice-Chairman of Confédération Nationale de la Mutualité de la Coopération et du Crédit Agricole “CNMCCA,” Fédération Nationale du Crédit Agricole and Banca Intesa (Italy) -Director of Crédit Agricole Solidarité et Développement, Fondation du Crédit Agricole Pays de France, Sacam, Sacam Participations, Scicam (France)
•
Gerhard Cromme -Chairman of the Supervisory Board of ThyssenKrupp AG (Germany) -Member of the Supervisory Board of Allianz AG, Axel Springer AG, E.ON AG, Hochtief AG, Siemens AG, Volkswagen AG (Germany) -Director of Deutsche Lufthansa AG (Germany), BNP-Paribas, Saint-Gobain (France)
•
Etienne Davignon -Chairman of Compagnie Maritime Belge, Compagnie des Wagons-Lits, Recticel, Sibeka, SN Airholding and Palais des Beaux-Arts (Belgium) -Vice-Chairman of SUEZ-TRACTEBEL (Belgium) -Director of Accor (France), Cumerio, Real Software, Sofina SA, SN Brussels Airlines (Belgium), and Gilead (United States)
•
Paul Desmarais Jr -Chairman of the Board of Directors and Co-Chief Executive Officer of Power Corporation of Canada (Canada) -Chairman of the Executive Committee of Power Financial Corporation (Canada)
-Vice-Chairman of the Board of Directors and Executive Director of Pargesa Holding SA (Switzerland) -Vice-Chairman of the Board and member of the Strategy Committee of Imérys (France) -Director and member of the Management Committee of Great-West Lifeco Inc. •
Richard Goblet D'Alviella -Executive Director of Sofina (Belgium) -Director of Danone, Eurazeo (France), Delhaize, Finasucre, Glaces de Moustier, Henex, SUEZ-TRACTEBEL, Union Financière Boël (Belgium), Caledonia Investments (United Kingdom)
•
Jacques Lagarde -Director of Eukarion Inc. (United States)
•
Anne Lauvergeon -Chair of the Areva Group Executive Board -Chair of the Board of Directors of Cogema -Chair of Areva Enterprises Inc. (United States) -Vice-Chair of the Supervisory Board of Safran SA -Director of Areva T&D Holding SA, Total, Vodafone Groupe Plc (United Kingdom)
•
Jean Peyrelevade -Partner of Toulouse & Associés -Director of Bouygues (France) and Société Monégasque de l’Electricité et du Gaz (Monaco) -Member of the Supervisory Board of CMA/CGM
•
Thierry De Rudder -Executive Director of Groupe Bruxelles Lambert (Belgium) -Director of Imerys, Total (France), Compagnie Nationale à Portefeuille, and SUEZ-TRACTEBEL (Belgium)
•
Jean-Jacques Salane -CGT union representative -Union representative on the Lyonnaise des Eaux SUEZ Pays Basque Workers’ Council since 1996 -Union representative on the Lyonnaise des Eaux Central Workers’ Council
since 1996 -Union representative on the SUEZ Workers’ Council since 1996, President of the French Supervisory Board of Spring Funds •
Lord Simon of Highbury -Senior Advisor Morgan Stanley International (Europe) -Director of Unilever plc -Member of International Advisory Board Fitch (Belgium) -Member of Cambridge University Council, Trustee Cambridge Foundation Trustee Hertie Foundation
1.3 Analysis of the individual companies Both companies have very different structures, on the one hand the structure appointed by the State and the other and more “classically” structured company. A brief overview of the previous descriptions can help understand the future events of the merger between the companies. In the case of Gaz de France, from what can be seen, the French government really exercises its role as major shareholder, not only a third of the Board is appointed but the government, but it also decides who the CEO of the company is. Another element that should be pointed out is the large presence of syndicate representatives, although one would think that they represent the employees as such, France is, according to statistics, one of the least unionized countries in Europe with only 9% of the active population. Therefore, can syndicate delegates really vouch and act in the name of employees? Not only does the company have the same person as CEO and Chairman of the Board, but the Board is split up into three equal parts, each representing a different sector in France; the State, the employees, and the private sector. Three sectors known to historically be antagonists in French economy and politics, can this Board really be considered to be free of conflicts of interest? Suez's structure is slightly more common with a Board which is entirely appointed by the Shareholder's General Meeting for a term of four years and is re-electable. The Chairman himself is appointed by the Board for a term decided by the Board itself. In the case of Suez, one can affirm that the shareholders are very well represented by the Board, specially considering the fact that in order to be a Director; a person must be a shareholder with at least two thousand shares. However, the fact that the Chairman of the Board and the CEO are one and the same can bring problems, Gerard Mestrallet could easily abuse of his powers. Another problem one could point is the fact that unlike GDF, Suez has no employee representatives in the Board save one union representative. It should also be noted that at least three of the Board Members including the Chairman have very close ties with the Pargesa Holding, which holds stakes in many different energy companies. Once again, can the Board be considered not to have conflicts of interest?
2. The merger of Gaz de France and Suez 2.1 The initial situation 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 merger proposal consists of 1 € of dividends per Suez share, in other words 1.25 € billion of dividends, and after the proposed dividends the shares of the new company would be on a basis of one share for one share. A total of 500 € million of synergies per year are estimated. As stated previously, on February 25th of 2006, the government announced its plans to merge with the group Suez. Gaz de France being a state owned company, this decision implied much analysis and consulting. However, much surprisingly, the French authorities developed the details concerning the merger only a few days later. The whole merger plan came forth “suddenly”, after Enel, the Italian energy group, had declared its interest in offering a bid for the group Suez. The merger was the option chosen by the French government to counter Enel's “hostile attempt” of taking over Suez. The announcement caused much anger on behalf of Italy, accusing France of economic protectionism, as well as much concern from Belgium since Suez and GDF together own practically 90% of Belgium's gas and electricity market. Apparently Enel was flush with money after selling its mobile phone business and was therefore looking where to invest its money. According to a paper sent to the European Commission after the announcement, Veolia had proposed joining Enel in a bid for Suez in November 2005. Veolia was to end up with the environmental services of Suez outside of France. But Veolia would have backed out after the hostile reaction of the takeover plan from the French government. This whole affair placed even more pressure on the Commission to further look into the merger. After the paper was handed to the commission, many conversations took place between Jacques Chirac and Silivio Berlusconi (prime minister at the time), to establish the “fair play” of the whole merger situation. Another element that had to be considered at the time was the fact that, GDF being state owned, by 80%, due to the differences in turnover between GDF and Suez, at the end of the merger, the state would end up with almost a third of the shares. According to French law, the State had to own a majority of the shares of the company. So the merger would imply an amendment in the law, and basically a privatization of GDF. This situation would bring a lot concern not only from the unions, historically known for their influence in France, but from political figures as well, including Ségolène Royal and Nicolas Sarkozy. All these elements well bring forth a series of hurdles that the French government along with the Board of GDF and Suez would have to overcome before seeing the merged company exist.
2.2 The path of the merger As it had been pointed out earlier, in order for the merger to take place, it would have to face many hurdles. More specifically before the operation can be concluded it has to be approved by the European Commission, and before the acquisition itself can take place the law in France about Gaz de France will have to be changed, and at the same time the new changes for the State owned company will have to be accepted by the unions as well the political parties who favored against it. Italy sent a memorandum to the Commission, memorandum which was written by Enel, thus expecting the EU to get involved in the merger after it had declared that it “broke only the "spirit" of EU regulations”2. The EU had decided, on June 26 th 2003, on a plan to liberalize the European energy market in three steps; until July 1st 2004 only those clients approved by the directive, following July 1st 2004 all none household clients and finally in July 1st 2007 all clients including households, this is why the Commission frowns upon the recent regrouping of energy groups. Nonetheless the Commission followed the operation closely after this memorandum was received. Shortly after Suez responded by filing a complaint to the commission aimed at Enel. The Commission's headache started when the Spanish company Gas Natural proposed a hostile bid on another Spanish energy company Endesa, which was later followed by another bid by Germany's E.ON which was badly looked upon by Spain. The whole affair ended with the EU ruling that Spain broke EU laws concerning restrictions on E.ON efforts for the acquisition of Endesa. Now the Commission has to deal with a similar scenario with France's GDF and Suez. The major issue concerning this operation is, as was mentioned previously, GDF and Suez together own most of Belgium's energy market. At the end of 2005, Suez bought out Electrabel for 14 billion €, now the Franco-Belgium group Suez holds practically 90% of the entire electricity market of Belgium. On top of that, GDF owns SPE, the second largest energy group in Belgium after Electrabel as well as some of the country's natural gas assets (ref: Annex 1). At first Suez and Gaz de France struggled to keep their hold on the Belgian market, but after many months of negotiations on October 2006, Suez and GDF agreed to make concessions. Suez finally agreed to sell its 62% stake of the Belgian gas distributor Distrigaz, both companies will sell their 25.5% stake in SPE and sell Cofathec and Fluxys as well as 60% of their stake in the Zeebrugge liquid natural gas terminal. Moreover the new merged group will have to make a series of investment projects in Belgium and in France in order to boost infrastructure capacities to allow new competitors. These were the terms agreed upon with the Commission in order for the EU to approve the merger, which was officially done on November 14th 2006. The EU also approved the government's plans for a veto vote right over key corporate decisions for France and Belgium. Another source of concern for the acquisition was obviously the French law of August 9th 2004, which besides allowing GDF to privatize a part of the company, also clearly stated that the French government must at all times own at least 70% of the group. Additionally, as mentioned before, because of the difference in turnovers between the two 2
From “EU studies Enel claim of foul play by French “, Internation Herald Tribune,, by Eric Sylvers
companies, the French government would own 34% of the shares of the merged company, therefore implying a change in the law. The amendment was sent for voting to the French parliament, where both chambers; the National Assembly and the Senate had to give their approval. On September 25th 2006, after two days of discussion and examination of more than 35 thousand amendments for the existing law, the National Assembly approved that the Government's new minimum shareholding of GDF would be a third of the shares. The Senate also approved the modification of the law shortly after, and although a later more official vote would took place, the motion passed. The opposition, made up of mostly of the Socialist, the Communist, and the left radical parties, as well as the UDF, the centralist party. They were mainly aiming for a reduction of the State's stake in GDF to 51%, therefore “avoiding the privatization of Gaz de France and at the same time giving it the means to forge the necessary alliances for its development”3. Some lawyers from the UMP, the right wing party of Jacques Chirac, voiced their preference for the creation of a French energy champion by merging Gaz de France with the former electricity monopoly EDF, but this idea never came through. Ultimately, while some politicians see the whole transaction as a means of protecting Suez from unsolicited foreign bids, others like those in the opposing faction see it as stratagem to further privatize the group. However, the final decision for the transaction had to ultimately come from the shareholders. The timetable for the operation had already been pushed back by now by the French court delaying the crucial council meeting with the shareholders (since GDF is mostly state-owned, council meetings must be approved by the French court of justice). The judge's decision on the date of the meeting would be settled on the 21st of November. Both Jean-Francois Cirelli and Gerard Mestrallet clearly stated that they wanted the meeting to take place before the end of December. Indeed, if the meeting were to be held after December, this would imply that all the paperwork would have to be redone and the accounts would have to be certified for the whole year of 2006 or even more. On top of that, some Suez shareholders, such as Albert Frere and Erik Knight from Knight Vinke have shown discontent towards the merger, asking for an exceptional cash dividend or a raise on the dividends per share of 1 or 2 €, not to mention that the employees of the Gaz de France claimed that they hadn't been thoroughly informed on the details of the transaction in order to be able to voice an opinion4.
3 4
Michel Mercier, from “Le Sénat approuve la privatisation de GDF”, LeMonde.fr, It must be noted that these claims were officially made by the Board members representing the employees of Gaz de France, the union representatives.
3. Chronology of events ➔
Feb 25th 2006: GDF Board announces its plan to merge with Suez.
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Sept 27th: French parliament approves the privatization.
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Oct 25th: French senate approves the privatization. Both approvals were done after a heated discussion among political parties.
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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. 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.
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Nov 30th: the French Constitutional Council effectively postponed the tie-up by seven months by ruling that the government could not reduce its stake in GDF to below 50% before July 1st 2007, date the EU has set to the opening of energy market EU-wide to the households sector (the industrial market has been open since 2004).
4. The current situation 4.1 The merger stopped The transaction between the companies facing so many hurdles eventually stumbled upon one of them. On Wednesday November 22nd 2006, the judge the court of appeal upheld a decision by a lower court. The judge ruled that the key council meeting could not take place before 2007, on account that Gaz de France's employees had not been appropriately informed about the operation and therefore they had not been adequately consulted. The unions filed a complaint stating the former as well as the concern for possible layoffs as GDF becomes privatized. This decision jeopardized the merger, as like mentioned previously; the necessary documents now had to be updated on a full year basis. That day Gaz de France's shares dropped 2.8% and Suez's shares dropped 2.3%. At first the decision took analysts and companies aback. But rapidly both groups started making plans for the meeting to take place around February, at the latest, around early March, in order to avoid the upcoming elections making the operation even more politically sensitive, and therefore increasing the risk of unexpected events. Bertrand Lecourt, an analyst at Dresdner Kleinwort stated: "The ruling impacts the timing of the merger but not the merger itself. Everybody still has an interest in the merger going through [...] the unions don't have the power to jeopardize the merger, they had the power to delay the schedule and they did. I still believe it will happen." Unfortunately the following turn of events would plunge the knife ever so deeply into the already open wound of the merger. On November 30th 2006 the Constitutional Council5, ruled since GDF is a public utility, the stake of the State can not be inferior to 50% before July 1st, thus stopping the merger process until then. This decision gave hope to the unions and to the opposers of the marriage between the two groups, and brought much doubt not only among some shareholders but to the merger itself. Both companies had apparently overlooked the unions.
4.2 The problems behind the merger This series of events clearly show how the difference in corporate governances between the two companies was the main source of problems. The fact that Gaz de France is state-owned and its governance structure were probably the “chinks in the chain”. A closer look at GDF strategy will show a few things; even though the French government controls the company, the amount of seats at the Board for union 5
The Constitutional Council is the French institution with the highest constitutional authority and has the power of to judge if a legislation is in conformity or not with the Constitution, the Declaration of Rights of the Man and of the Citizen and the Preamble of the constitution of the Fourth Republic, if brought before it.
representatives (a third) clearly reveals the power they hold in the group. The people in charge of promoting the transaction clearly under estimated the power of the unions. It was the European Works Council (EWC) who filed the complaint to the court of justice as well as the complaint to the Constitutional Council. Apparently a dialog between GDF and its EWC is a compulsory step for these kinds of transactions. Another aspect that must be taken into account is the announced structure for the merged group. Under the new structure, the Board would be made up of 24 members but only three seats would be for union representatives. Although it was stated that this structure would only be temporary and for transition reasons, the unions showed their discontent. But even though the power of the unions within the state-owned company seem like the obvious problem with the merger, before coming up with the new structure of the merged group many negotiations were needed. The differences between the two companies' management were also sources of problems and it took a few months before agreeing on the proposed structure. The merged group's new CEO and Chairman would be Gerard Mestrallet while Jean-Francois Cirelli would be Vice Chairman and President. Together they would “jointly” manage the company, but their separation of roles is still unclear, especially in equally senior management decisions such as human resources, as well as a clear definition of Mr. Cirelli's responsibilities, clearly a principle-agent problem. Moreover, considering the Mr. Mestrallet would retire relatively soon, the conditions of the new management don't clearly state if Mr. Cirelli would take over afterwards.
4.3 The upcoming events After the decisions ruled by both the court of justice and the Constitutional Council the transaction was put to a pause. During the months of December and January much speculation and different events came to light, without great repercussion on the deal. During the following weeks, government representatives such as the French Finance Minister, Thierry Breton made a statement, declaring that the State had not abandoned the idea, and that he would personally see the merger through, “It is now up to GDF to draw up its business plan within the calendar it has fixed with Suez [...] the Government, for its part, is ready to assume its responsibilities.”. Even the President Jacques Chirac during a speech on January 4th 2007, that the combination of GDF and Suez in order to create a major player in energy was a “strategic project for France and Europe”. He had also previously stated during his New Year's address, that the merger was important and that both the government and the people should support the project. Other interesting events which followed the French institutions rulings were the exchanges of shares of Suez, as well as the speculation of new bids for Suez. Among the shareholders who sold out their stakes of Suez, there is Caixa's stake, which was bought by Albert Frere, and later Knight Vinke sold his stake to Mr. Frere as well. These stock transactions boosted Mr. Frere's holding in Suez from 1% to about 10%. It came much as a surprise when Knight Vinke sold his stake of Suez, since the holding had for longtime
fighting to get a bigger dividend from the merger, and it had also been proposing for some time now, to separate Suez's energy sector from its environment sector. Analysts later reported that in fact Mr. Pinault could propose a bid for Suez once more. Through his family's holding Artemis, Pinault had already cooperated for a while with Enel to bid for Suez, and later around October, he had proposed another bid by himself. France's Financial Markets Authority met on January 9th 2007 established a deadline by which Pinault must present an offer for Suez or refrain from doing so entirely for the coming six months, according to French takeover law, and eventually barred him for six months. But reports from a French magazine stated that Albert Frere along with Bernard Arnault might also propose a bid for Suez, although officially nothing was confirmed. However all these events show just how unstable the merger between the companies has become. Ultimately though, after a meeting of the Board, both groups scheduled an extraordinary meeting on June 25th for shareholders to vote on the planned transaction, meaning that the merger is not a dead issue for the Boards. A fact that might change the whole aspect of the situation will undoubtedly be upcoming French presidential elections in April 2007. Two of favorite candidates, Ségolène Royal and Nicolas Sarkozy have already expressed their opinions on this subject. Ségolène Royal being the candidate for the Socialist Party has stated that she will not allow Gaz de France to be privatized and that if the merger were to go through before the elections, she would be willing to renationalize the company. On the other hand Nicolas Sarkozy, representing the UMP, a right wing party, at first was against the transaction, preferring a merger between EDF and Gaz de France, and later begrudgingly approved the merger. In any case, he is certainly not enthusiastic about it. One could say that the merger is now in the hands of the French voters.
Conclusion The merger has wrought much tension in France, especially on a political level, but on an economic level as well. The transaction just had to many opposers; political parties (Socialists, Communists and Centralists) as well as the union, which even managed to halt the process until July 1st 2007, rendering the whole even more politically sensitive. Some might say that the transaction was rushed therefore leaving gaps at which the opposers attacked. But I believe that merger's main problems came from the differences in governance structure. When privatization is involved in a company traditionally belonging to the State, especially in countries like France where state capitalism is well looked upon, problems are waiting just around the corner. Although some actors seem intent into breaking the process, the government and the Boards of both companies are apparently ready to wait until after the French elections, only then will the situation be more certain about the future of both groups. However the whole process, if it came through, might prove to be worthwhile. With the liberalization of the energy market in Europe approaching, the merger with Suez might be the edge GDF needs to become a leader in energy.
Bibliography Encyclopedias:
“SUEZ”, Wikipedia, the free encyclopdia last update: 2 December 2006 url: http://en.wikipedia.org/wiki/SUEZ
“Suez (groupe), Wikipedia, l'encyclopédie libre last update: 1 December 2006 url: http://fr.wikipedia.org/wiki/Suez_%28groupe%29
“Gaz de France”, Wikipedia, the free encyclopdia last update: 2 December 2006 url: http://en.wikipedia.org/wiki/Gaz_de_France
“Gaz de France”, Wikipedia, l'encyclopédie libre last update: 24 November 2006 url: http://fr.wikipedia.org/wiki/Gaz_de_France
“Constitutional Council of France”, Wikipedia, the free encyclopedia last update: 9 January 2007 url: http://en.wikipedia.org/wiki/Constitutional_Council_of_France
Corporate websites:
“Board”, Gaz de France – Corporate Website url: http://www.gazdefrance.com/EN/public/page.php?iddossier=513 url: http://www.gazdefrance.com/FR/public/page.php?iddossier=218
“Conseil d'Administration”, Gaz de France – Corporate Website url: http://www.gazdefrance.com/FR/public/page.php?iddossier=218
“Board of Directors – Internal Regulations”, Suez – Corporate Website url: http://www.suez.com/documents/english/suez_reglement_ca_uk.pdf
“Suez – Bylaws”, Suez – Corporate Website url: http://www.suez.com/documents/english/statuts_suez_en.pdf
“Board of Directors”, Suez – Corporate Website url: http://www.suez.com/groupe/english/organisation/index.php
Newspaper articles and others:
Etienne Fontain. “Enel details French intervention in Suez takeover drama” Petroleumworld.com, March 3rd 2006 url: http://www.petroleumworld.com/story06030303.htm
Aymeri de Montesquiou. “Politique européenne de l'énergie”, Sénat Français p. 25-28, March 15th 2006 url: http://www.senat.fr/rap/r05-259/r05-2591.pdf
“Brussels Suez-Gaz de France merger “, Euronews – Economia November 14th 2006 url:http://www.euronews.tv/create_html.php?page=detail_eco&article=390795&l ng=1
Peggy Hollinger. “COMPANIES EUROPE: Suez and GdF deal faces time pressure”, Financial Times, FI.com, October 20th 2006 Eric Sylvers. “EU studies Enel claim of foul play by French “ Internation Herald Tribune, March 3rd 2006 url:http://www.iht.com/articles/2006/03/02/business/SUEZ.php
James Kanter. “More doubt on Suez-GDF merger plan”, International Herald Tribune, November 22nd 2006
The Associated Press, “Chirac: GDF-Suez merger remains strategic objective”, International Herald Tribune, January 4th 2007
Carolyn Henson and David Gauthier-Villars. “Suez agrees to loosen grip on Belgian power market”, MarketWatch, October 6th 2006
“Suez, GdF say offer new antitrust concessions to EU”, MarketWatch, October 13th 2006
“GdF, Suez boards won't OK merger terms before November-union”, MarketWatch, October 13th 2006
“Suez, GdF agree on organization of merged company”, MarketWatch, October 23rd 2006
“Gaz de France, Suez to unveil new group structure Monday”, MarketWatch, October 27th 2006
“Suez, GdF governance to reflect merger of equals”, MarketWatch, October 30th 2006
“Suez, GdF say Mestrallet to be chairman and CEO of merged company”, MarketWatch, October 30th 2006
“GdF works council meeting on Suez deal postponed”, MarketWatch, November 7th 2006
“French Fin Min: AMF To Probe Trading In GdF, Suez Shares -2”, EasyBourse, October 17th 2006
“Suez, GdF: Mestrallet To Be Chairman And CEO Of Merged Co -2- “, EasyBourse, October 30th 2006
Anne-Sylvaine Chassany, Dow Jones Newswires. “UPDATE: French Parliament Approves GdF Privatization”, EasyBourse, September 27th 2006
Anne-Sylvaine Chassany, Dow Jones Newswires. “French Parliament Adopts GdF Privatization, Energy Law-2”, EasyBourse, November 8th 2006
Aude Lagorce. “Suez-Gaz de France deal faces rising opposition. Shareholders threaten to reject the tie-up; terms may well be sweetened”, EasyBourse, November 21st 2006
Aude Lagorce. “UPDATE: Court Ruling Deals Blow To Gaz De France, Suez Merger”, EasyBourse, November 22nd 2006
Parmy Olson. “Suez Rules Out Sale Of Assets To Conti's Enel”, Forbes, June 12th 2006 url:http://www.forbes.com/facesinthenews/2006/06/12/suez-enel-italycx_po_0612autofacescan04.html
“Suez rules out any sale of Electrabel assets to Enel”, Forbes, June 12th 2006
Chris Noon. “Europe's Batteries Running Low”, Forbes, October 12th 2006
Parmy Olson. “Pinault Seen Losing Patience”, Forbes, October 12th 2006
“Le Sénat approuve la privatisation de GDF”, LeMonde.fr, October 25th 2006
“Le Conseil constitutionnel valide la privatisation de GDF mais retarde sa mise en œuvre”, LeMonde.fr, Novembre 30th 2006
“Suez : Wendel se pose à nouveau en possible partenaire”, LeMonde.fr, December 4th 2006
Cahill, Tom, Bloomberg News. “Gaz de France wants merger meeting in '06 “, International Herald Tribune, November 9th 2006 url: http://www.iht.com/articles/2006/11/08/bloomberg/bxgdf.php
“France denies retreat on GDF-Suez deal”, Business Week, November 22nd 2006
“La France met au point la fusion entre GDF et Suez”, LeDevoir.com, February 28th 2006
Ladka Bauerova. “Gaz de France Will Hold June Shareholder Meeting on Suez Merger”, Bloomberg.com, January 23rd 2007. url: http://www.bloomberg.com/apps/news?pid=20601085&sid=agtmMzgyFWn4&re fer=europe
Adam Sage. “French minister vows to forge ahead with GdF privatisation”, The Times, December 25th 2006
“GDF-Suez Merger Further Delayed by Court Ruling”, ICEM.org (International Federation of Chemical, Energy, Mine and General Workers' Union)
December 11th 2006 url: http://www.icem.org/en/78-ICEM-InBrief/2066-GDF-Suez-Merger-FurtherDelayed-by-Court-Ruling
“Unions Win Important Legal Battle in GDF-Suez Merger Saga”, ICEM.org, November 27th 2006 url: http://www.icem.org/en/78-ICEM-InBrief/2047-Unions-Win-Important-LegalBattle-in-GDF-Suez-Merger-Saga
Appendix I. Gaz de France subsidiaries Algeria: Subsidiary name
Business
(% of GDF's stake)
Gaz de France Exploration Algeria
Exploration - Production
100%
Subsidiary name
Business
(% of GDF's stake)
EEG ERDGAS ERDOL GmbH
Exploration - Production
100%
Groupe Gasag International
Transport and Distribution
31,6%
Megal GmbH International
Transport and Distribution
43%
Gaz de France Produktion Exploration Deutschland Gmbh (PEG)
Exploration - Production
100%
Subsidiary name
Business
(% of GDF's stake)
BOG
International Transport and Distribution
44%
Estag
International Transport and Distribution
5%
Subsidiary name
Business
(% of GDF's stake)
Cofathec Benelux
Services
100%
Segeo
International Transport and Distribution
25%
SPE
International Transport and Distribution
25.5%
Germany:
Austria:
Belgium:
Canada:
Subsidiary name
Business
(% of GDF's stake)
Groupe Noverco
International Transport and Distribution
17.6%
Groupe GDF Quebec
International Transport and Distribution
100%
Subsidiary name
Business
(% of GDF's stake)
Enerci
Exploration - Production
49%
Subsidiary name
Business
(% of GDF's stake)
Gaz de France Exploration Egypt
Exploration - Production
100%
Subsidiary name
Business
(% of GDF's stake)
Gaz de France Comercializadora
Energy Purchase & Sale
100%
AES Energía Cartagena
Energy Purchase & Sale
26.2%
Subsidiary name
Business
(% of GDF's stake)
undefined
undefined
undefined
Subsidiary name
Business
(% of GDF's stake)
Groupe SAVELYS (CGST-Save)
Services
49%
Banque Solfea
Other
54.7%
COGAC
Other
100%
DK6
Energy Purchase & Sale
100%
Finergaz
Services
100%
Cofathec ADF
Services
100%
GDF Armateur
Energy Purchase & Sale
100%
Ivory Coast:
Egypt:
Spain:
United States of America:
France:
Subsidiary name
Business
(% of GDF's stake)
Gaselys
Energy Purchase & Sale
51%
Gaz et Electricité de Grenoble
Distribution in France
4.3%
Gaz de Bordeaux
Distribution in France
16%
Gaz de Strasbourg
Distribution in France
24.9%
Gazocean
Energy Purchase & Sale
80%
GDF Transpot & Technigaz
Energy Purchase & Sale
40%
GDF International Trading
Energy Purchase & Sale
100%
GNVert
Services
100%
GRTGaz
Transmission and Storage in France
100%
Messigaz
Energy Purchase & Sale
100%
Méthane Transport
Energy Purchase & Sale
50%
SFIG
Other
100%
Technip
Other
7.15%
Groupe Thion
Services
34%
GDF Armateur 2
Energy Purchase & Sale
100%
Cofatec Coriance
Services
100%
Cofatec Omega
Services
100%
Cofatec Projis
Services
100%
Cofatec Services
Services
100%
GDF International
Other
100%
CyCoFOS
Energy Purchase & Sale
100%
Ste du Terminal Methanier de Fos CAVAOU
Transmission and Storage in France
69.7%
SIALF
Other
100%
Subsidiary name
Business
(% of GDF's stake)
Degaz
International Transport and
99.8%
Hungary:
Subsidiary name
Business
(% of GDF's stake)
Distribution Egaz
International Transport and Distribution
99.4%
Subsidiary name
Business
(% of GDF's stake)
Petronet LNG
International Transport and Distribution
10%
Subsidiary name
Business
(% of GDF's stake)
Arcalgas Energie
International Transport and Distribution
42.6%
Cofathec Servizi
Services
100%
Cofathec Italy
Services
100%
Italcogim
International Transport and Distribution
40%
Arcalgas Progetti
International Transport and Distribution
44.2%
Subsidiary name
Business
(% of GDF's stake)
GDF Exploration UK BV
Exploration - Production
100%
Subsidiary name
Business
(% of GDF's stake)
Gasoductos del Bajío
International Transport and Distribution
100%
Consorcio Mexigas
International Transport and Distribution
100%
Energía Mayacan
International Transport and Distribution
67.5%
Tamauligas
International Transport and
100%
India:
Italia:
Mauritania:
Italia:
Subsidiary name
Business
(% of GDF's stake)
Distribution Transnatural
International Transport and Distribution
50%
NatGazMex
International Transport and Distribution
100%
Subsidiary name
Business
(% of GDF's stake)
Gaz de France Norge
Exploration - Production
100%
Subsidiary name
Business
(% of GDF's stake)
GDF Production Netherland BV
Exploration - Production
100%
NoordGas Transport (NGT)
Exploration - Production
42.6%
GDF Supply Trading and Marketing
Energy Purchase & Sale
100%
Subsidiary name
Business
(% of GDF's stake)
undefined
undefined
undefined
Subsidiary name
Business
(% of GDF's stake)
Portgas
International Transport and Distribution
12.8%
Subsidiary name
Business
(% of GDF's stake)
Med LNG Gas
Energy Purchase & Sale
50%
GDF Britain
Exploration - Production
100%
Cofathec Heatsave
Services
100%
EFOG (EF Oil and Gas limited)
Energy Purchase & Sale
22.5%
Norway:
Netherlands:
Poland:
Portugal:
United Kingdom:
Subsidiary name
Business
(% of GDF's stake)
Gaz de France Energy Supply Solutions
Energy Purchase & Sale
100%
Subsidiary name
Business
(% of GDF's stake)
Ecogaz
Other
49.9%
Mospartelogaz
Other
50%
SPBVergaz
Other
50%
Fragaz
Other
50%
Subsidiary name
Business
(% of GDF's stake)
Pozagaz
International Transport and Distribution
43.4%
Groupe SPP
International Transport and Distribution
24.5%
Subsidiary name
Business
(% of GDF's stake)
undefined
undefined
undefined
Subsidiary name
Business
(% of GDF's stake)
undefined
undefined
undefined
Subsidiary name
Business
(% of GDF's stake)
Distrigaz Sud SA
International Transport and Distribution
51%
Russia:
Slovakia:
Ukraine:
Uruguay:
Romania:
II. Stock price chart of GDF and Suez
Illustration 1: Gaz de France stock price 2006
Illustration 2: Suez stock price 2006
