EDF shares surge on delay for Suez-GDF deal 01/12/2006 00:00

PARIS, Dec 1, 2006 (AFP) - Shares in French electricity generator EDF reached record high points on Friday on a ruling delaying any possible deal between gas group GDF and Suez and also finding against controlled prices.

The price of shares in Electricity de France, the biggest generator of nuclear power in the world, was showing a mid-day gain of 6.71 percent to EUR 51.65.

This was the biggest rise among shares listed on the French CAC 40 stocks index which was showing an overall gain of 0.14 percent.

Dealers said that EDF shares had surged on fading prospects for Suez to absorb GDF in an alliance which would give power to Suez as a competitor.

European Union energy markets become fully open to competition from rival suppliers on July 1, 2007.

Late on Thursday the French Constitutional Council cleared the way in principle for private company Suez to absorb state-controlled GDF, but also set the scene for an eventual end to regulated prices by saying that they would conflict with open market rules.

The government habitually approves only part of price increases sought by GDF and EDF.

The council also ruled that the Suez-GDF deal could not be completed before July 1, when GDF loses its monopoly to supply gas to private homes.

The Suez-GDF deal, highly controversial in any case, is now in trouble because a court ruled recently that GDF had not informed staff fully as required by law about the implications for employees.

This has delayed approval of the deal by the two companies until February at the earliest, and throws the matter into campaigning for a presidential election at the end of April.

The planned alliance was widely seen as a way of making Suez to big to be the target of a possible bid by Italian energy group Enel, although France says that the two companies have to become bigger to compete in increasingly difficult energy markets.

A dealer at brokers Meeschaert said that the decision by the Constitutional Council cast even more doubt over the planned marriage "and this reassures investors about the outlook for EDF".

He said: "The council, in delaying the merger, has delayed the emergence of a big competitior to EDF and this is pushing up the share price".

To open the way for the deal, the centre-right government has pushed through legislation permitting the privatisation of GDF in the face even of reticence among its own supporters who were concerned on a number of fronts, and notably that gas prices would rise more quickly under a privatised entity than under state control.

However, the council also found against arrangements in the legislation enabling EDF and GDF to continue applying "regulated prices" which are currently lower than prices on the open market.

Analysts at brokers BNP Paribas said that "this is very good for EDF" because it "shows that French law is incompatible with European directives (EU laws) and opens the way for the removal of regulated prices sooner than expected".

They said that the French government would have difficulty in objecting to pressure from EU authorities on deregulating prices. "The end of regulated prices is at hand and strengthens the arguments of EDF regarding a rise in regulated prices before they are eliminated".

Analysts at brokers Credit Mutuel CIV said that EDF shares had also benefited from speculation that EDF might make an alliance with British group Scottish Power which is being courted by Spanish group Iberdrola.

They said that this possibility seemed "credible".

But shares in GDF did not appear to benefit from the same considerations about the removal of regulated prices. Investors seemed to be more concerned about the implications of the delay of any deal with Suez and shares in GDF were showing a fall of 0.77 percent to EUR 32.35.

Copyright AFP

Subject: French news