France reviewing options on GDF, no decision yet

The fate of a planned 90 billion euro ($123 billion) merger between Gaz de France and Suez remained in doubt on Thursday after a meeting held by French President Nicolas Sarkozy reached no decision on the matter.
France's newly elected government has been keeping its options open on whether state controlled GDF should link up with Suez as proposed 18 months ago by the previous administration, or continue on its own or tie up with a foreign peer.
Sarkozy, Prime Minister Francois Fillon and Finance Minister Christine Lagarde and other officials discussed several industrial projects at their weekly meeting at the Elysee presidential offices, including the future of GDF, the president's spokesman said.
"There are different options being examined. We are working on it," the spokesman said, referring to GDF. Les Echos and affiliated newspaper the Financial Times reported on Thursday the meeting would discuss three options: a merger between GDF and French power giant EDF, a merger of GDF with a foreign company such as Algerian oil and gas company Sonatrach, or the merger between GDF and Suez. These are the options Fillon spelled out last month for GDF.
But Les Echos, citing a person familiar with the situation, said no definite decision would be taken and the secretary-general of the presidential palace said recently a decision was not due before a couple of weeks.
Early in 2006, the previous conservative government engineered a "merger of equals" between electricity, water and waste services company Suez and GDF, which runs Europe's largest gas transmission system, to fend off a feared take-over bid for Suez by Italian utility Enel.
But the valuation gap between the two utilities has widened, making such a deal harder. At Wednesday's closing share prices, Suez was worth 54.4 billion euros and GDF was valued at 37.6 billion. In addition, trade unions have from the start opposed the planned merger fearing job losses if the French state reduced its stake in GDF to allow a tie-up with Suez or another company.
The CFE-CGC trade union said in a statement on Thursday it was received twice in the past few days at the Elysee regarding the planned merger. It said it favoured a merger between GDF and EDF. The state owns a stake of about 87 percent in EDF and is bound by law to keep at least 70 percent its share capital. Suez shares slipped 0.4 percent to 42.27 euros by 1016 GMT and GDF fell 0.9 percent to 37.91 euros.
Separately on Thursday the European Commission said GDF and Suez would have to notify if again of their possible merger if its terms changed substantially.
Several industrial sources and analysts have said that a GDF-Suez merger be possible if Suez sold its environment unit, valued at 17 billion to 20 billion euros, but Suez has ruled out that option. French utility Veolia Environment has repeatedly expressed interest in Suez's environmental assets.
The FT reported that a 4 billion euro share buyback by Suez, effectively giving its shareholders a payout to compensate for the difference in value of the two companies, could be one way of unblocking the impasse and that both sides accepted this as a possible solution. Suez Chief Executive Gerard Mestrallet and GDF head Jean-Francois Cirelli have reiterated their support for the merger, both calling it the best project for their company.
EDF CEO Pierre Gadonneix has so far declined to comment on the possibility that the electricity company could merge with a French rival, but did say EDF and GDF could jointly develop projects. EDF runs all of France's nuclear power plants. Conservative Sarkozy had said he wanted to examine whether GDF would be better off linking with another gas producer. But sources close to Sonatrach and one source close to GDF have said it was unlikely that the Algerian energy giant would buy a stake in GDF.