France: Birth of a champion

France’s CAC 40 stock market exchange will become the CAC 39 for a while on Tuesday, as a consequence of a merger (well over two years in the making) between utilities Gaz de France and Suez. The merger will create Europe’s second-largest utility, which will result -- at least according to the managers say -- in handsome economies of scale and increased investment in gas and nuclear programmes. Critics suspect a state-engineered link-up, with negative consequences for consumers.

The groups have jumped numerous hoops to arrive at their destination: especially in France, where GdF had to be part-privatised for the deal to go ahead (the opposition tried to filibuster the necessary parliamentary bill, with 137,600 parliamentary amendments), and with respect to regulators, who demanded sell-offs to avoid the creation of local monopolies. Furthermore, to make the link-up one of equals in the face of Suez’ stronger stock market performance, that firm has had to sell its historic water business -- dating back to the eponymous canal.

The plan works against the European Commission’s liberal instincts, on several grounds. It creates a ‘bundled’ giant directly at odds with its proposals for separating the different functions of energy firms. It creates a group eager to link gas and electricity contracts, in spite of Commission action against such practices. Lastly, and in counterpoint to the controversies over ‘privatizing’ the firm, it creates a very state-oriented animal. The French government, which was champion and orchestrator of the merger under President Nicolas Sarkozy, will keep a 35 per cent stake in the new firm, bringing “stability” according to Suez CEO Gerard Mestrallet but also creating another champion alongside current European behemoths E.ON and Electricité de France -- cutting against the grain of a Commission hoping to separate government and business.