Concerns over planned Gaz de France–Suez merger

At the end of February 2006, French Prime Minister Dominique de Villepin revealed plans for a merger between two of France’s leading energy companies, Gaz de France and Suez. The merger plans had been in development since the summer of 2005. The corporation thus created would be one of the largest energy companies in Europe. The announced merger has provoked anxiety and opposition among employees, as well as strong criticism from other energy industry groups in Europe.

On 25 February 2006, French Prime Minister Dominique de Villepin announced plans to merge the public service energy distributor Gaz de France (GDF), which had been partly privatised in the autumn of 2005 (FR0509104F), with the Franco-Belgian Suez energy group. The merger plan is said to have received the backing of the Belgian government.

The prime minister argued that the planned merger was motivated by:

  • the necessity to establish strategies that ensure France’s independence in terms of energy needs;
  • the opening up of the European energy market to competition (TN0502101S, or in French: TN0502103S);
  • the need to maintain a consistent French industrial policy within the context of globalisation, in which mergers leading to the establishment of world-class companies are becoming increasingly frequent.

At the request of the Minister of the Economy, Finance and Industry, Thierry Breton, who was anxious to find areas of mutual benefit and common interest between the companies, GDF Managing Director, Jean-François Cirelli, and Suez Managing Director, Gérard Mestrallet, began to draft a merger plan in September 2005. In their opinion, such a merger plan ‘is not a little local French marriage’, but involves developing an energy company on a European scale. Both managing directors confirmed their ‘ambition of opting for the status of a European limited company’.

If the merger goes ahead, the French state, which currently owns 80% of GDF’s shares, would hold a 34% stake in the future energy group.

Industry concerns

The establishment of a group embracing GDF and Suez has raised a number of issues and generated strong opposition across Europe.

The announcement came days after the Italian energy company ENEL (IT9911256F) stated that it was planning to launch a takeover bid for Suez. ENEL claims that the planned merger initiated by the French authorities has deprived it of any chance of buying Suez; it has thus lodged a complaint with the European Commission. The company’s board decided to wait until September 2006 before deciding whether to go ahead with a takeover bid. Meanwhile, the European Commission communicated its statement of objections to the two French groups, detailing its concerns with regard to healthy competition in markets where the two companies have overlapping businesses. This is a compulsory stage in merger operations requiring an in-depth examination by the Commission’s competition authorities.

In Belgium, the Commission for the Regulation of the Electricity and Gas Industries (CREG) (BE0411303F) also identified major problems should the two energy companies join forces, in relation to competition and the safety of energy provision. Indeed, the two groups own the two biggest electricity producers in Belgium: in 2005, Suez bought Electrabel (BE0405301N), while GDF owns 25% of the Belgian-based energy company SPE. Consequently, CREG suggests that both groups – GDF and Suez – should divest themselves of some of their Belgian assets.

Legal provisions

In France, Law No. 2004/803 of 9 August 2004 (in French) regulates the provision of electricity and gas, and provided for the partial privatisation of GDF. It also stipulates that the state must retain a minimum of 70% of GDF’s equity, to which the government firmly committed itself at the time. Nevertheless, the GDF–Suez merger plan would entail the state reducing its stake to a veto minority, representing 34% of the combined business, which would require amending existing legislation and passing a new law.

Moreover, the 2004 law also instituted Electricité Gaz Distribution (EGD), a jointly-owned public service energy distributor employing some 60,000 workers on secondment from Electricité de France (EDF) and GDF workers. However, the planned merger of GDF and Suez could jeopardise EGD’s existence, with Suez being the second largest French electricity company after EDF and holding 8.5% of the French electricity market.

Trade union reactions

The Suez group-level works council declared its hostility to a takeover by ENEL, considering the ‘unsolicited offensive’ to be ‘detrimental to employment in both France and Europe’; at the same time, the group-level works council of GDF opposed any merger with Suez. On 7 March 2006, the General Confederation of Labour – Force ouvrière (Confédération générale du travail – Force ouvrière, CGT-FO) and the energy divisions of the Independent Union – Solidarity, Unity, Democracy (Union syndicale – Solidaires, Unitaires, Démocratiques, SUD) issued an initial call for strike action, which did not materialise.

However, two weeks later on 23 March 2006, between 45% and 75% of GDF and EDF workers went on strike to protest against the GDF–Suez merger plan, in response to a strike call by several trade union confederations, including: the French Confederation of Professional and Managerial Staff – General Confederation of Professional and Managerial Staff (Confédération française de l’encadrement – confédération générale des cadres, CFE-CGC), the General Confederation of Labour (Confédération générale du travail, CGT), CGT-FO and Sud Energy. The unions are more in favour of the establishment of a large energy industry group combining EDF and GDF.

Benoît Robin, Institute for Economic and Social Research (IRES)

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