Under the plan, Suez would sell shares of Suez Environment on the market, paying out a special dividend to shareholders, said the people who declined to be identified because the talks are confidential. Alternatively, it could distribute the unit's shares directly to shareholders. The energy operations of Suez would then be merged with state-controlled Gaz de France.
The original merger plan, now valued at about 56 billion euros ($76 billion), has been mired in political and valuation concerns since it was put forward in February 2006 to ward off a possible bid for Suez from Italy's Enel SpA and to create Europe's second- biggest utility. With the new plan, Suez is bowing to pressure from French President Nicolas Sarkozy, who yesterday said he favored a merger of Gaz de France with just the energy business of Suez.
``This decision increases the probability of a successful merger as it meets the government's requirements and Suez shareholders' interests,'' Stephane Mardel, head of risk arbitrage and special situations research at ICAP Plc in London, said by telephone.
Suez spokeswoman Catherine Guillon said ``talks are continuing.'' She declined to comment on specific details of the negotiations, as did Gaz de France spokesman Jerome Chambin and David Martinon, Sarkozy's spokesman.
Shares Rise
Suez shares rose 1.8 percent to 41.74 euros, valuing the Paris-based company at 54.1 billion euros ($74 billion). Gaz de France surged 4 percent to 36.80 euros, the biggest one-day gain since May 7. Trading in Gaz de France was temporarily halted after the stock breached the market limit.
The merger of the Suez and Europe's biggest natural-gas network operator, both based in Paris, would create a utility second only to Electricite de France SA in Europe. While broad terms of the merger have been agreed on, bankers are now ironing out the details, with negotiations to be completed in a matter of days, the people said.
New Terms
Under terms being discussed, Suez, the world's second-largest water company that also has energy operations, would cut its stake in its Suez Environment unit to as little as 35 percent, leaving the group with a blocking minority in the event of a hostile bid, a person involved in the talks said today.
French weekly magazine Le Point reported on its Web site earlier today that a merger plan would be announced Sept. 3, without saying where it got the information.
Terms announced last year included a one-for-one stock swap and a 1 euro dividend to Suez shareholders to make up for the difference in their market values, which have since widened, leading to demands from Suez shareholders for a higher payout.
The widened gap would also have diluted the state's stake in the merged company, which can't go below 34 percent by law. The spinoff would reduce the difference in the market capitalizations between Suez and Gaz de France.
``The merger terms could be revised in a way that could allow the government to have a larger stake in the combined company as well as allowing Suez shareholders to get more value,'' said Mardel.
Suez Chief Executive Gerard Mestrallet has in the past resisted considering a sale of the waste and water units, which account for about a third of operations.
Under the previous plan Mestrallet was to head the combined group with Gaz de France SA Chief Executive Officer Jean-Francois Cirelli second-in-command. It is unclear if that would still be the case under the new plan.
Suez Spinoff
``A spinoff of Suez Environment offers clear upside to Suez shareholders because there will be so many interested parties vying for stakes in the market afterwards,'' Renaud Berenguier, head of hedge fund advisory and trading at Aurel Leven in Paris, said in an interview. Suez shares could rise above 48 euros, he said.
Selling off two-thirds of the water and waste unit would allow the French government to retain directly about 38 percent of the newly merged entity and even more through its indirect holdings such as the Caisse des Depots and Consignations, the state-owned bank that now owns a 2.8 percent stake in Suez, he estimated. ``This would be seen as a political victory for Sarkozy.''
Veolia Environnement SA, JC Decaux SA and Vinci SA as well as Eurazeo SA and Wendel are companies that could be interested in buying into Suez Environment, analysts including Berenguier have said.
Via: Bloomberg
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