Enel, Italy's state controlled energy company, has recently expressed interest in the acquisition of French-based energy company SUEZ. The possibility of this hostile takeover has caused restlessness in both Paris and Rome, due to a French government-backed proposal to counter this offer by creating an alliance between Gaz de France (GDF) and SUEZ. An alliance between the Franco-Belgian utility giants would be a novel approach, but Italian prime minister Silvio Berlusconi has asked French president Jacques Chirac not to intervene against Italy's energy giant Enel.
This possible acquisition follows Eon's 29bn (?19.8bn) cash bid for Endesa of Spain, which has caused much unrest in the European energy sector. The French giant EDF (?lectricit?© de France), which is a key player in several European countries, was obliged to react to Eon's bid by claiming that it too is planning to invest 40bn in the next three years. Enel's bid on SUEZ has caused a similar reaction by GDF.
Peggy Hollinger of the Financial Times wrote of the controversy, "It is getting difficult to keep track of who wants to do what to whom in the orgy of [European] merger speculation."
Enel's strong interest in the nuclear centers of Electrabel, a subsidiary of SUEZ, has caused additional friction. This comes less than a year after the settlement of serious disagreements over EDF's takeover of 50 percent of Edison, another electricity giant. French Prime Minister Dominique de Villepin and Chirac both claimed that they considered Enel's hostile bid as aggression against France. Meanwhile, it is understood that SUEZ and GDF have recently been considering a possible alliance, such as a share swap or joint venture that could indicate a future full merger.
Both GDF and SUEZ have complementary portfolios and are relatively small in European energy markets. But for such a merger to happen, certain legislative measures would have to be taken to overturn a French law mandating that the government must hold 70 percent of GDF's shares. Many speculate, however, that there could be a new law passed in parliament whereby this mandatory number would drop to around 50 percent.
Guilio Tremonti, Italy's finance minister, threatened to toughen takeover laws in response to France's plans to allow companies to enact poison pill type defense strategies. Berlusconi has added that he is in a dialogue with the French government, which he hopes will not intervene in Enel's bid of SUEZ.
Apossible change in France's legislature remains hypothetical until the presidential elections in 2007. However, as suggested by Jean-Michel Bezat in le Monde, a merger between GDF and SUEZ makes sense. Not only are the companies complimentary, but such a move would also not affect employment, which is rare in such transactions. Furthermore, this alliance would allow both companies to be more competitive in the European energy market.
France is not the only country considering legislative measures to counter hostile foreign takeovers in the energy sector. Spain is also exploring measures to block the bid that Eon has made over Endesa.
While legislative measures have yet to be taken, an alliance such as that between GDF and SUEZ could have a great influence on the French government's future political clout in deciding issues such as the privatization of its state owned companies.
