Energy giant emerges

PARIS - Two French utility companies, among the top 10 in the world, are to merge, creating an entity worth more than €72 billion ($130 billion).

The combination of Suez (No 4) and and Gaz de France (No 9) will create the second biggest global power and gas supplier as well as fend off a possible takeover bid from Italy's Enel.

Banking sources said the merger would take the form of a share bid by Suez for GDF, perhaps enhanced with cash. French Government sources said the French state would be directly involved in running the merged Suez-GDF entity but Finance Minister Thierry Breton said it had not yet been determined how big the state's final stake would be.

The centre-right Government risks angering the European Commission and the World Trade Organisation because of concerns that its tough defence of French industry defies the spirit of free movement of capital.

Italian Economy Minister Giulio Tremonti has criticised the merger, saying European Union members should stop defending their national companies from foreign takeovers.

"We still have time to stop EU states from building national barriers. If not, we risk the impact of August 1914," Tremonti said, referring to the start of World War I.

Enel declined to comment. A meeting between the French and Italian industry ministers due today to discuss fighting counterfeit goods has been cancelled.

French Prime Minister Dominique de Villepin said the merger was important to safeguard France's independence in energy supplies. "The merger of Gaz de France and Suez seems the most appropriate solution."

Breton will start consultations today, including with Parliament. The Government owns about 80 per cent of GDF and legal changes are needed for it to own less than 70 per cent.

Breton, indicating it was too early to determine the state's final stake in the new entity, said: "The state's participation will in no case be below the blocking minority, or 34 per cent."

Villepin is wary of allowing a hostile foreign takeover of Suez, which could upset voters before presidential and parliamentary elections next year, but he also risks upsetting trade unions and provoking labour unrest.

The big CGT and CFDT unions said they were hostile to the merger as it would dilute the state's holding in GDF and put at stake the principle of a public service.

French banking sources had expected Enel to launch a takeover bid for Suez as early as today, but it now remains to be seen whether the Italian company backed by its country's Government will dare take on the French authorities.

- REUTERS