Pulling political rabbit out of the hat on GdF

Ever since President Nicolas Sarkozy and his new government came to power, they have been behaving as if the opposition had in fact won the recent French elections. This may seem a little odd given that the Socialists were roundly defeated by the right-wing UMP party that governed France for the past five years and of which Mr Sarkozy has been a leading member. Indeed, he was both a senior minister and the party’s president.

Yet Mr Sarkozy and his prime minister, François Fillon, appear to be doing everything they can to distance themselves from former President Jacques Chirac and the previous right-wing government led by prime minister Dominique de Villepin. But then Mr Sarkozy and Mr de Villepin were best of enemies and fierce political rivals. Mr Fillon also did not hit it off with the former prime minister and was dropped from the previous administration.

These old rivalries and enmities inside the ruling right-wing camp now seem to have become one of the last remaining obstacles to the 16-month efforts to merge state-controlled Gaz de France with the Suez energy and environment group.

The €90bn merger was one of former prime minister de Villepin’s pet projects. Mr Sarkozy has never been very enthusiastic about the deal and indeed opposed it, in private at least, when Mr de Villepin first proposed it. But since his election, Mr Sarkozy seems to be warming to the merger. Mr Fillon said three weeks ago that the proposed merger was a “valid” idea. So it would not be surprising if the government decided in coming days that it was “essential” to go ahead with it.

The problem is that the merger will have to be dressed up as an industrial initiative by France’s new pro-active administration led by the ebullient Mr Sarkozy. Rather than admitting that his predecessor was right, Mr Sarkozy will probably claim that his administration has done a far more thorough job in considering the various strategic options facing France’s energy policy and put the necessary conditions in place to allow the merger to go ahead.

Sure, the new government has already looked at alternative partners for GdF including Algeria’s Sonatrach and EDF, the French state-controlled electricity behemoth. These turned out to be unworkable solutions. With energy consolidation gathering pace in neighbouring countries, particularly Spain, the government appears to have concluded that it could not postpone a decision on GdF indefinitely.

Bankers, lawyers and government advisers all continue to argue that the valuation difference between GdF and Suez makes it hard to envisage a deal. They claim it would be politically difficult for the government to accept a Suez proposal to pay a special dividend of about €5 a share to its shareholders to cover the valuation gap. And Suez has no intention of spinning-off or shedding assets to slim down to accommodate the valuation equation.

But the bookies are betting that Mr Sarkozy will pull a rabbit out of his political hat to unblock the situation and claim all the credit for creating a new French energy champion to flank Total, EDF and Areva. After all, he did exactly that with Alstom, the engineering group whose survival strategy was launched by Mr Sarkozy’s predecessor as finance minister. But Mr Sarkozy ultimately claimed all the credit for Alstom’s remarkable return from the ashes.

General Electrification

Siemens may have hired a former manager from General Electric as its new chief executive. But the German conglomerate still has much to learn from its larger US rival. On Wednesday Siemens spent a whole day giving media presentations on climate change and the group’s approach on this issue. But to many people it looked like a clumsy response to GE’s successful Ecomagination initiative. To be fair to Siemens, both companies are acting in many of the same areas, such as more energy efficient power and infrastructure projects. But GE’s approach highlights the troubles many German companies have marketing themselves, especially over climate change.

Luxury carmakers have found themselves pilloried, while Siemens has been outflanked even though it is one of the world’s largest producers of wind energy. Wednesday’s response hardly helped matters as Siemens – unlike GE’s rather creative attempts – failed to give any revenue targets.

Peter Löscher, the former GE executive who takes over at Siemens on Monday, says he does not want to “General Electrify” the German group. Equally, copying each other can lead to absurd results, such as the two companies’ cross-selling strategies being called Siemens One and One GE. But coming after a year when Siemens’ communications skills have been battered by the bankruptcy of a former business and a huge bribery scandal, Mr Löscher may find his old employer has some ideas worth adopting.


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