Gaz de France Essay

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Gaz de France began in 1946 as a government-owned corporation that produced and delivered natural gas, founded at the same time as Électricité de France (EDF). GDF’s customers were primarily consumers in France where its base, by 2000, was 11.1 million customers. It was also an international company, transporting and selling gas worldwide, in Belgium, Britain, Germany, and eastern Europe with a customer base of 2.8 million outside the country. Although the main business of GDF was natural gas, its business areas included nuclear power and other forms of electricity generation.

GDF’s status as a government-owned company began to change in 2005 when a limited amount of stock (20 percent) was sold on the Paris Stock Exchange for a price of approximately €2.5 billion. In the following year it was announced that GDF would merge with Suez, another French energy company. The merger was difficult to accomplish because of difficulties in several areas. Shortly after the announcement of the plan to merge, two major labor unions in France threatened to strike in protest. Italy complained to the European Union (EU) about the merger as one of its own utility companies, Enel, had been planning to acquire Suez. Finally, the European Union antitrust organization was examining the deal very closely because Suez owned Belgium’s main power company and GDF owned a 25 percent share of Belgium’s second-largest power company.

French national laws had to be changed because the French government was still a majority owner of GDF stock and had pledged that it would always own at least 70 percent of the company’s stock. The merger would reduce the French government’s holdings to around 35 percent of the new entity. There would be a new set of problems in effecting the merger when the government of Villepin was replaced by the government of Nicolas Sarkozy. Sarkozy had expressed strong opposition to the deal, although he eventually changed his mind. In September 2007 the boards of directors of both corporations and the terms of the merger were publicly disclosed. The merger, which was completed in July 2008, after two-and-a-half years of effort, resulted in a corporation with €91 billion in assets and holding the number two position among European utilities.

The interest in GDF Suez on the part of the EU has continued. In mid-May 2008 as part of a series of raids on energy companies in Belgium, Italy, Austria, and Hungary, GDF was investigated by the European Commission. The basis for the investigation was that several companies were abusing their dominant position in their own countries. One goal of the EU had been to begin to eliminate the advantages national providers of energy had exercised in their own countries, undercutting the efforts of the EU to create a single market across the EU. Less than a month later, on June 13, GDF and E.ON were accused of colluding to raise prices. The Commission charged GDF and E.ON had agreed not to sell energy to each other’s countries. In addition, as both countries jointly owned and operated a gas pipeline that transported natural gas from Russia to Europe, that management of that pipeline was coming under investigation. Both companies denied the accusations which, if proven, could result in fines equal to up to 10 percent of their revenue. GDF noted that their arrangements had predated the European Commission and the EU. Both companies have in recent years been under increasing EU pressure to sell their supply grids in order to encourage competition across Europe’s borders.

Finally, as 2008 came to a close, the European Commission was also investigating to determine if GDF has been purposely limiting investments in its own infrastructure in order to block competition from other companies that have access to GDF’s transport infrastructure.

From the perspective of successful operations, however, the GDF Suez merger has thus far been successful. The company reported that some projects that had been started before the merger were continuing. These included acquisition of electricity generation companies in the United States and Thailand and a gas distributor in Turkey. Further increased sales of electricity in Brazil contributed to the company’s success.

Bibliography:

  1. GDF Suez, www.gdfsuez.com (cited March 2009);
  2. James Kanter, “Europe Accuses 2 Utilities of Price Fixing” New York Times (June 13, 2008);
  3. James Kanter, “France Calls Urgent Meeting on Utilities Merger,” International Herald Tribune (June 19, 2006);
  4. Paul Meller, “European Antitrust Officials Raid Gas Company Offices,” New York Times (May 18, 2006);
  5. Mergent Online, www.mergentonline.com (cited March 2009).

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