France’s new government inherited the politically orchestrated merger of Gaz de France and Suez. But it is struggling to form a coherent view about whether the deal, creating a champion with a €90bn equity value, should go ahead, and if so on what terms. The main problem is that Suez is trading at €42 a share, above the €38 implied by the terms of a share swap plus a €1-a-share dividend.
These terms should probably be renegotiated in Suez’s favour – its earnings estimates have crept up since the deal was announced in February 2006. Unfortunately, the mechanics have become controversial. Improving the share ratio might risk the French government’s holding of 80 per cent of GdF being diluted below the “red line” of one-third of the new entity. Raising the dividend is judged to be politically controversial. Suez, correctly, has refused to spin off assets ahead of the deal merely to tidy up the terms.
