GDF Suez merger achieved amidst controversy
In July 2008, the merger between GDF and Suez was complete, leading to the creation of the European energy, water and environment giant GDF Suez. The French state remains the biggest single shareholder in the new corporation. The merger generated considerable controversy, as the European Commission and trade unions were strongly opposed to the plan. GDF Suez management undertook not to make any employees redundant and even talked of creating jobs.
On 22 July 2008, after almost 30 months of twists and turns, the merger between the French public service energy distributor Gaz de France (GDF) and the Franco-Belgian Suez energy group (FR0603039I) created a new European energy giant with close to 200,000 employees. The new corporation represents France’s third biggest market capitalisation after Total and the French electricity incumbent Electricité de France (EDF). Reluctance and even opposition to this Franco-Belgian marriage – coming from both the European Commission and the trade unions – were gradually removed or skirted around. As a result, the conditions imposed by the European Commission in return for the GDF Suez merger, such as the sale of 25.5% of the shares held in the Belgian-based energy company SPE, were met.
Profile of new corporation
The merger project provides for the following measures:
- the exchange of 22 Suez shares for 21 GDF shares;
- the market listing of Suez Environnement, which is Suez’s water and waste-management business, in order to compensate for the difference in value between the two companies;
- the distribution of 65% of Suez Environnement’s capital to Suez shareholders, who will receive one Suez Environnement share for four Suez shares.
Management of the new GDF Suez corporation immediately declared their ‘intention to consolidate positions on domestic markets (France and Benelux) and use the complementary nature of both companies in order to strengthen their dual-fuel gas and electricity service and related services’.
The GDF Suez board is composed of 24 members, including 10 members proposed by Suez, 10 by GDF comprising seven representatives of the French state, appointed by decree, and four employee representatives.
The French state, which owns more than 35.7% of the capital of the new corporation through GDF, retains special rights that enable it to oppose the sale of assets which are considered strategic in France, such as pipes for transporting gas, as well as assets related to energy distribution, stocking and terminals. The fact that the French state remains the biggest single shareholder in the new GDF Suez corporation is the result of Nicolas Sarkozy’s achievement as Minister of the Economy in 2004 to keep 70% of GDF’s capital in the hands of the state.
Moreover, the main shareholders of the new corporation include the Caisse des dépôts (1.7%), Areva (1.2%) and CNP Assurances (1.1%), in each of which the French state is the main shareholder; Bruxelles Lambert (5.3%) is the biggest Belgian shareholder.
Following the presentation of the merger plan in 2006, many obstacles emerged in achieving the merger between the two energy companies. These are briefly outlined below.
- In June 2006, the European Commission announced an in-depth four-month survey of the planned merger, just a few days before the demonstration of gas and electricity workers against the plan to privatise GDF. The strike action was called by the trade unions representing energy workers affiliated to the General Confederation of Labour (Confédération générale du travail, CGT), the General Confederation of Labour – Force ouvrière (Confédération générale du travail – Force ouvrière, CGT-FO) and 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).
- In November 2006, the French parliament adopted Article 10 of the law on energy which authorised GDF’s privatisation, in spite of strong opposition. Some 137,500 amendments were made to the law, which was a record for the French fifth Republic. The European Commission gave the go-ahead for the proposed merger, provided Suez sold its 57% share of the Belgian natural gas distributor, Distrigaz, and GDF sold its 25% share of the Belgian electricity company, SPE.
- At the end of November 2006, the Paris appeal court decided to postpone the meeting of GDF’s board on the merger until the company’s European Works Council (EWC) had been fully informed.
While various legal proceedings were ongoing, further proposals were made in 2007.
- In June 2007, following the French presidential elections, the newly appointed Prime Minister François Fillon proposed alternative solutions, including bringing GDF closer to EDF or to the Algerian company Sonatrach.
- In September 2007, both companies presented a new version of their merger plans envisaging coming closer together by exchanging shares.
- In December 2007, the government supported the merger by publishing a decree on privatising GDF and offering tax relief to transform Suez’s environment activities into a subsidiary.
Meanwhile, GDF management took the trade unions to the Paris court (Tribunal de grande instance) for blocking the consultation process. However, the court rejected GDF’s case and ruled that the company should not only better inform the trade unions, but also provide the latter with sufficient time to examine the proposals. At that time, the planned merger was blocked, and it was doubtful whether the timetable for the merger – initially planned to go ahead before 30 June 2008 – could be maintained.
At the end of May 2008, in a report commissioned by the Central Works Council (Comité central d’entreprise, CCE) of GDF, experts of the accountancy and technological consultancy, Secafi-Alpha, forecast the failure of the GDF Suez merger. According to the Secafi-Alpha report, the future Franco-Belgian energy giant would suffer from an ‘insurmountable handicap’ in relation to its main rival EDF. The report argues that, in a market for private households that was opened up to competition in July 2007, the battle will in fact be about companies’ ability to offer twofold energy supplies such as electricity and gas.
After GDF’s EWC had given a negative opinion on the proposed GDF Suez merger in March 2008, the CCE also gave a negative opinion although its secretary, who is a member of CGT, made a final attempt to postpone the decision. Since the last workplace elections, held at the end of 2007, CGT has a minority position in GDF’s CCE, with nine votes out of 20.
Reactions to the merger
The CGT CCE secretary considers that trade union tenacity aiming to converge the positions of the French and European worker representatives – both at GDF and Suez – made it possible to turn the consultations with the employee representation bodies into a strong point of resistance to the merger plans. This strong employee representation also contributed to force management to reveal the real consequences of the merger for both users and employees. The desire to silence employee representatives was swept aside by significant legal decisions – seven in total – regarding employees’ rights in terms of information and consultation. These rulings will impact on all future industrial restructuring.
CGT-FO welcomes the fact that the CCE succeeded in persuading the company’s management to create a ‘merger observatory’. The observatory will be a ‘semi-independent body and bring together human resources experts from GDF and elsewhere, as well as sociologists and trade unionists’. Nonetheless, the trade union observes that all employees in the new corporation continue to fear for their jobs.
GDF’s former Chair, Jean-François Cirelli, who has become Vice-Chair of the new corporation, believes that ‘mergers often lead people to think of restructuring and closure’. He guaranteed, however, that ‘there will be no redundancies because of the merger’. The corporation should recruit ‘at least 10,000 people a year’, with 9,000 people replacing retirees and 1,000 new jobs being created.
Benoît Robin, Institute for Economic and Social Research (IRES)