Suez/Gaz de France Merger

THE SKEPTIC: When France's Arranged Marriages Go Wrong

Matthew Curtin - Dow Jones International News
  
PARIS (Dow Jones)--Poor GdF and Suez. France's constitutional court has ruled they can get married, but can't live together until next July.

The two might instead decide not to get married at all.

The court set July as the date because France's energy market liberalization should have taken place by then. But liberalization won't be the only event taking place in the meantime.

France's May presidential election could result in victory for Socialist candidate Segolene Royal. And she may well call for the renationalization of GdF and EdF. It is actually a plank in the party's platform, but Royal isn't bound to adopt it.

By July 2007, it will be about 18 months since French Prime Minister Dominique de Villepin announced the GdF and Suez merger. The financial terms were fixed at the time.

But market conditions change and the already complicated task of merging the companies will become harder in the next eight months. Trade unions, which have already delayed shareholder meetings to confirm the deal until February, get new grist from the court.

Suez shareholders may be close to calling the whole thing off, particularly if the upcoming hiatus tempts Enel into making a rival bid.

The chances of the merger going ahead haven't completely disappeared.

The government, which is GdF's major shareholder, and the Suez board may revise original merger terms by February, allowing shareholder meetings to go ahead before the elections.

And assuming shareholders do have a definitive merger project to approve before May, it's hard to see Royal, if she wins, using up political capital and the state's stretched finances to unwind GdF's merger and privatization.

The constitutional court's other decision late Thursday, insisting France comply with E.U. directives opening up the energy market to competition, might also work in GdF's and the merger's favor.

The court said GdF and EdF no longer have to offer government-set tariffs to retail customers from July. EdF's shares jumped 6% on the news of a potential boost to sales and margins. GdF should benefit too, undercutting the argument the original merger terms overly flattered GdF's prospects compared with Suez's.

The flipside is that the staunchest critics of GdF's and EdF's privatizations have based their arguments on the fears that floating the two companies would mean French households would face higher energy bills. It looks as if they will, albeit for a good reason: energy costs more these days.

But it's a sign that even if things go well from hereon in for GdF and Suez, this politically-compromised, badly-managed merger is no foregone conclusion.

(Matthew Curtin has been a financial news reporter since 1990, and has reported on international finance and business for Dow Jones Newswires - from South Africa, Singapore and now Paris - since 1994. He can be reached at +331 4017 1740 or by e-mail: matthew.curtin@dowjones.com [1]) [ 01-12-06 1247GMT ]