Suez-GDF merger frozen until after elections 01/12/2006 00:00

PARIS, Nov 30, 2006 (AFP) - The merger of French energy groups GDF and Suez hit more trouble on Thursday when the Constitutional Council, which rules on the legality of government legislation, said the deal should be delayed until July next year.

The judgment means completion of the merger, which has been driven by the current centre-right government, can only take place once presidential elections in April and May have been completed.

Given the opposition of the Socialist party to the deal, which entails the privatisation of GDF, the decision could provide an opportunity to unravel a merger proposal which has been under attack since its birth in February.

The head of the Socialist party in the French parliament, Jean-Marc Ayrault, said the council had put "the future of GDF in the hands of French people".

"A majority on the left will be in a position to put an end to this privatisation" following the election, he added.

The companies had hoped to finalise the merger, which would create a group capitalised at about EUR 83.0 billion, by the end of this year.

The deal hit further regulatory delays earlier this month when GDF's works council succeeded in obtaining a court-ordered postponement of a board meeting to authorise the tie up.

Under the terms of the deal, state ownership in GDF is to fall to about 34 percent from 80.2 percent.

The Constitutional Council said it had validated the law allowing the privatisation of Gaz de France, but also said that if the merger goes through, it can only be operational after July 1 next year.

This is the date that France's natural gas market will be fully deregulated, ending GDF's near monopoly as a public gas service.

"This condition, legally indispensable, does not halt the acts leading to the merger," including approval by Suez and GDF shareholders at annual general meetings expected early next year, the council said.

France's opposition Socialist Party had asked the council to rule on the legislation as part of its efforts to block the merger.

GDF and Suez put a positive spin on the ruling, both saying the decision allowed them to go ahead with their tie-up.

The French finance ministry said the decision allowed the two companies "from now on to go ahead with their business project without waiting".

Trade unions also welcomed the judgment, which they described as another victory.

The CGT appeared to pre-judge the outcome of next year's elections, which are expected to be a closely fought battle between Ségolène Royal of the Socialist party and Nicolas Sarkozy of the centre-right UMP.

"This decision confirms the death of the GDF-Suez merger," said the hard-left union.

The proposed merger of Suez and GDF is widely seen as an attempt by the centre-right government to thwart a feared hostile bid for Suez by energy group Enel of Italy.

Analysts have said the French group could reappear as a takeover target if the plan for a merger with GDF eventually sinks.

Copyright AFP

Subject: French news