French Prime Minister Dominique de Villepin on Saturday announced plans for a merger between energy and utilities company Suez SA and Gaz de France. The move would block a potential hostile bid from Italy's Enel SpA.
Villepin said that Suez and Gaz de France (GDF), had been discussing a deal for months to bring their "close and complementary" activities together in power production and distribution.
Enel had announced on Wednesday that it planned to make acquisitions in France or Spain.
"Given the strategic importance of energy, the fusion of Gaz de France and Suez seems today to be the most appropriate path," Villepin said.
Villepin did not specify which entity would absorb which to form the new company, nor did he discuss the sensitive issue of privatization. While Suez is in private hands, GDF is 80 percent state-owned. Once the merger is completed, France's government is bound to have a smaller stake in the company.
Parliament, he said, would be called upon for the necessary legislative changes. Under French law, government holdings in state companies cannot fall below 70 percent.
Economy Ministry officials said the French state would retain at least a third of the new company -- giving it a "blocking minority" under French law.
"This would be a mixed capital company. The state will be directly present in the running of the enterprise," said a government official who wished to remain anonymous. "The law will set the rules of the game."
The merger will give France a second important utility company next de Electricite de France, Villepin said.
Italian Prime Minister Silvio Berlusconi said on Thursday that he had discussed the situation with French President Jacques Chirac and Villepin -- and asked that the French government remain neutral in any takeover battle involving an Italian company.
As GDF's majority owner, the government had to approve.
After Villepin's announcement, Italian Industry Minister Claudio Scajola abruptly canceled a trip to Paris scheduled for today to meet French counterpart Francois Loos, Italy's ANSA news agency reported.
Villepin only reluctantly agreed to the plan, fearing political and trade union opposition, officials close to the situation told Dow Jones news service.
At the same time, "Villepin didn't want another Mittal-Arcelor situation," a banker involved in the current talks told Dow Jones.
Netherlands-based Mittal Steel last month launched an unsolicited offer on pan-European steel producer Arcelor that took the French government by surprise.
Suez employee representatives announced on Friday that they were opposed to any hostile bid from Enel, Italy's biggest power company, and would support a friendly deal with GDF.
However, the Communist-backed CGT union said it was hostile to a plan defined "without real public debate." A union statement expressed fears the deal would dilute the public presence, put Suez' 160,000 employees at risk as well as GDF workers and agents working together with GDF and EDF, Electricite de France. It demanded a "real debate" over economic and financial stakes of the future energy sector.
Villepin said that discussions with unions, would begin today with Economy Minister Thierry Breton over the terms of state control "to guarantee public service and the security of France's energy provisions."
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