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Suez-GDF Deal Joins Hedge Funds, Unions in Opposition (Update2)
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By Tom Cahill
Nov. 22 (Bloomberg) -- Tim Gittos, a hedge fund adviser who says he's politically to the ``right of Margaret Thatcher,'' has allied with Communist-backed unions to lobby against the plan to combine Gaz de France SA and Suez SA, Europe's biggest utility merger.
``We may not share the same politics, but our target is the same: stopping this merger,'' Gittos, a merger-arbitrage analyst at Aurel Leven Securities in Paris, said earlier this month.
Investors who own at least 15 percent of Suez stock plan to vote against the 42.7 billion euro ($54.8 billion) merger because Paris-based Suez is worth billions more, said Eric Knight, chief investment officer of New York-based Knight Vinke Asset Management. They want GDF, the operator of Europe's largest natural gas network, to pay a special dividend or make way for another suitor to bid for Suez, whose board may meet as soon as today to vote on the deal.
Labor groups led by the Confederation Generale du Travail, France's biggest energy union, oppose the combination, brokered by the French government in February. The union, founded by the Communist Party of France, says the plan to cut the state's GDF stake to 34 percent from 70 limits government power to cap energy costs.
The takeover would create Europe's second-largest utility and block a potential offer for Suez from Rome-based Enel SpA. The state won't force the merger if GDF has to pay more than ``the fair price,'' Finance Minister Thierry Breton said Nov. 20. The deal, backed by the Union for a Popular Movement Party, is opposed by the opposition Socialist Party and comes five months before France's presidential elections.
Final Hurdle
``In the event that GDF is unable or unwilling to agree to satisfactory terms, the board of Suez should not hesitate to call off the merger,'' Vinke said in a statement yesterday. Suez would have ``an attractive choice of merger partners.''
The Suez board meeting was reported by the Wall Street Journal yesterday. A spokeswoman for Suez, Caroline Lambrinidis, declined to comment. A GDF board meeting for today was postponed after the company's workers' council won a court ruling to delay it, and GDF lost an appeal, said Martine Feuillerat, secretary for the company's workers' council, a group consisting of elected employee representatives.
The delay in the GDF board meeting may push a shareholder vote into 2007, with a close before March ``unlikely,'' Per Lekander, an analyst at UBS AG in London with a ``buy'' rating on Suez shares, wrote in a report today.
GDF shares fell 59 cents, or 1.8 percent, to 32.59 euros, and Suez slid 29 cents, or 0.80 percent, to 36.19 euros as of 12:56 p.m. in Paris. Before the ruling yesterday, GDF shares hit a record and shares of Suez were at the highest in six-years.
`Not Normal'
Since the deal was announced 10 months ago, parliament passed a law to permit the merger. GDF and Suez met demands from Belgium's government and agreed to sell units to satisfy the European Union.
Cooperation between unions and hedge funds ``is not normal,'' Jean-Francois Cirelli, GDF's chief executive officer, said last week at the inauguration of the world's largest liquefied natural gas tanker at Port Saint-Nazaire. ``Indirectly they may have the same goals, but that's it.''
Former U.K. Prime Minister Thatcher broke unions in the 1980s, making it easier for companies to fire striking workers and restricting protests.
A minority of Suez stockholders have said they oppose the terms of the deal -- a one-for-one share swap plus a 1-euro dividend for each share of Suez. The merger requires approval by two-thirds of Suez investors.
Trading in Suez shares suggests investors expect the dividend to be increased by at least 2.3 euros because the stock has traded above the terms offered by the French government since the deal was announced.
Neuville, Frere
Colette Neuville, who leads a French shareholder group known as Adam, said yesterday that shareholders should get at least 4 euros a share more. That would require GDF to pay another 5.08 billion euros.
Belgian billionaire Albert Frere, Suez's biggest investor, is demanding a special dividend of at least 4 euros, La Tribune reported yesterday, without saying where it got the information. Frere didn't return calls to his office in Paris.
Analysts expect a dividend of at least 3.3 euros, according to the median of eight analysts in a Bloomberg survey. Knight Vinke said yesterday that a dividend of 3.50 euros wouldn't be enough. The firm didn't say what amount would be satisfactory.
Unions say any extra dividend is a ``gift'' to investors paid by French natural gas customers and oppose the payment. They are challenging France's new law allowing the state's stake in GDF to fall because it may violate terms of the 1946 constitution.
``We may both be opposed to the merger, but we don't have the same position,'' said Eric Buttazzoni, a union member on GDF's board. ``We're against any special dividend.''