“Tomorrow, and tomorrow, and tomorrow/Creeps in this petty pace from day to day/To the last syllable of recorded time,/And all our yesterdays have lighted fools/The way to dusty death.” The outcome will (one hopes) not be the same but Suez and Gaz de France shareholders might share the rest of Macbeth’s sentiments.
Nineteen long months have passed since the proposal to merge the two utilities and it could be eight months more until the deal is consummated. In the meantime, information to help investors understand the merged group remains relatively scarce. Some details on operational and financial objectives, as well as corporate governance, were published on Monday. They do not go far enough.
This is due in part to political sensitivities. A target of nearly €2bn in annual cost, revenue and financial synergies by 2013 pussyfoots around the main opportunity for cost-cutting – reducing the group’s €10bn of annual staff costs. Those synergies that can be mentioned actually seem underestimated – like cutting €300m a year from the €48bn now spent on procurement.
This is a source of potential upside for investors. Other oddities, such as a 24-person board, are clearly negative. An unwieldy governance structure also provides little reassurance about how the new group will use its huge financial firepower. In spite of a larger-than-expected capital expenditure programme, net debt is anticipated to be just 1.1 times earnings before interest, tax, depreciation and amortisation at the end of 2008. With a market capitalisation of about €90bn, GdF Suez has the capacity to be a bull in the china shop of global utilities.
The merger of two big businesses is, obviously, going to be a complex task. Politics has clouded this deal for many months and the management now has the opportunity to make its vision clearer. On Monday that opportunity was sadly missed.