A new European energy giant is formed
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WITH the Rugby World Cup tournament starting in Paris this weekend, President Nicolas Sarkozy has appropriately continued his act as a political fly-half, starting another flamboyant attack with the ball emerging from yet another scrum. His latest move has converted the 18-month impasse over the merger of Suez and (largely) state-owned Gaz de France (GDF) into a typically French solution. The two companies will now merge as equals, while Suez floats off two-thirds of its environment division. In much the same way as he darted in to solve the Franco-German power struggle at Airbus immediately after his election, so Mr Sarkozy has shown his ability to loosen another industrial knot.
The French state will go from owning 80% of a medium-sized energy company to holding 35% of a new global energy giant. GDF Suez, as it will be called once shareholders rubber-stamp the deal, will be the leading gas company in Europe and the global leader in liquified natural gas. The merged group also owns nuclear power stations in Belgium and has strong positions in America, Brazil and the Middle East.
Suez boss Gérard Mestrallet and GDF president Jean-François Cirelli will run the combined company jointly—at least to begin with. The pair had been quietly plotting a merger for years, but French politicians were afraid of trade union opposition to anything that smacked of privatisation of the state utility. So they kept a lid on the pair’s plans. But a hostile merger bid from Italy’s Enel group in February 2006 changed the scene. France’s then prime minister Dominique de Villepin unveiled the merger as an act of economic nationalism cooked up to fend off the Italians, who wanted Suez for its nuclear business and were planning to break up and sell off the rest. Mr de Villepin’s government laboured long and hard to persuade its supporters in parliament to back the plan, only to find it delayed and then caught up (because rules about employee consultation had been breached) in the general paralysis that afflicts France during presidential election campaigns.
So this political industrial mess was always going to be an early test for the president. Mr Sarkozy’s prime minister François Fillon said in June that he would come up with a way out of the impasse, but nothing happened. Instead the pint-sized president met Mr Mestrallet last week and emerged with the outlines of a deal. Up until Thursday evening Mr Mestrallet had been resisting any concessions, saying that Suez would not shed the environmental business that accounted for about a third of its profits. That he gave way to Mr Sarkozy is another sign of the power of the presidency once an energetic incumbent decides to interfere.
Two waves of privatisation in the 1980s and 1990s partly dismantled the edifice of nationalised industry built after the second world war and extended in the early 1980s by the Socialist president, François Mitterrand. But the French state still has extensive holdings in industrial companies, ranging from carmaker Renault to France Telecom and Air France. On one count, no less than a tenth of the French economy is accounted for by firms with a state involvement, and state-owned companies employ about 1.3m workers, making them a powerful political force when jobs are at risk.
Mr Sarkozy’s first months in office show a mixed picture. He has pressed ahead with reforms of the labour market and signalled business-friendly changes in taxation. He accepts that France must adopt modern ideas such as Anglo-Saxon capitalism and globalisation. On the other hand, he continues to bleat about the European Central Bank allowing the euro to remain strong against the dollar and he seems intent on pursuing a traditionally Gaullist policy of intervention in business when he thinks it would suit the French national interest, in areas such as energy, aerospace and defence. Investors and other European governments should brace themselves for more lively scrums.
