Bickering over price may break GDF-Suez plan

21st November 2006, Comments 0 comments

PARIS, Nov 21, 2006 (AFP) - A plan for French energy group Suez to absorb state gas giant GDF lurched towards confrontation on Tuesday only hours before a crucial vote.

PARIS, Nov 21, 2006 (AFP) - A plan for French energy group Suez to absorb state gas giant GDF lurched towards confrontation on Tuesday only hours before a crucial vote.

The main shareholder in Suez, Belgian financier Albert Frere, said that Suez stockholders would not approve the plan unless the state allowed the group to increase sharply an agreed special dividend to reflect a rise in Suez shares.

The plan amounts to privatisation of Gaz de France, but some Suez shareholders are also concerned that the state will end up with influence inside Suez, even describing this as amounting to "nationalisation".

The plan for Suez to absorb Gaz de France has survived deep controversy in France, and even hostility by government members of parliament a few months ago.

It is also emblematic of deep tensions within the European Union over energy policy, since it was widely seen as a defence against a possible bid for Suez by Italian energy group Enel.

On Wednesday the boards of Suez and GDF are to meet, ostensibly to approve the alliance, but Frere told the newspaper Les Echos that "the (Suez) shareholders will not vote for the merger" if the special dividend were not "revised seriously higher".

On Monday, Economy and Finance Minister Thierry Breton, who has fought hard to overcome obstacles and helped push legislation to privatise GDF through the National Assembly, had implied that he might even walk away from the deal if he considered the demands by the Suez shareholders to be excessive, or "too greedy".

Frere said the agreed dividend had to be increased "in light of the evolution of Suez's financial situation and its results since the plan was announced" in February.

Another Suez shareholder, Eric Knight of the US investment fund Knight Vinke has already said he would expect a dividend of EUR 6.5 or EUR 7 and that he would reject a figure circulating at present in the market of EUR 3.5.

Under the initial agreement for Suez to absorb GDF, one Suez share was declared to be worth one GDF share, after payment of a special dividend of one euro per share to Suez shareholders from Suez resources.

Since then the two groups have published results and the price of shares in Suez has risen to be worth about three euros more than GDF shares.

Small shareholders in Suez were the first to demand an increase in the dividend to reflect this, and many experts believe that an increase is inevitable. On Saturday, the chief executive of Suez, Gerard Mestrallet, said that he intended to increase the payment.

The president of ADAM, an association which defends small shareholders, Colette Neuville, said on French radio BFM on Tuesday that if the dividend were less than EUR 4.0 "there is a possibility that the merger will not be approved" by shareholders.

The price of Suez shares gained 0.57 percent to EUR 36.97 in morning trading on Tuesday on prospects that the dividend would be increased, dealers said. GDF shares fell by 0.15 percent to EUR 33.75.

The state owns 80.2 percent of GDF, but now has legal authority to reduce its holding to 33.3 percent plus one share. Knight has expressed concern that the state might restrict the freedom of the new group to develop and Neuville has alluded to a "nationalisation" of Suez.

The state has promoted the alliance on the grounds that the two groups alone are not big enough and that it is in the national interest.

But European Union authorities, faced with another controversy over an attempt by German energy group E.ON to buy assets in Spain, wants consolidation to be driven by market forces.

Copyright AFP

Subject: French news

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