Veolia Falls Most in 11 Weeks After Denying Merger Talks

Veolia Environnement SA (VIE), the world’s biggest water company, fell the most in 11 weeks in Paris after denying merger talks with Suez Environnement.

Veolia slid as much as 6 percent, its worst decline since Aug. 2, and Suez Environnement, the second-largest water utility, dropped 1.5 percent. Both companies on Oct. 20 denied they planned to combine operations.

Suez Chief Executive Officer Jean-Louis Chaussade contacted Veolia’s Antoine Frerot in August to propose a merger, Le Monde reported that day. Discussions were called off following meetings the next month involving Goldman Sachs Group Inc., Deutsche Bank AG and Rothschild, the newspaper reported.

Veolia fell 4.4 percent to 8.136 euros by 2:45 p.m. in Paris while Suez dropped 1.1 percent to 8.343 euros. Veolia’s market value has slumped more than half since the middle of 2011 when it began to accelerate a reorganization and asset sales. Veolia and Suez are both valued at about 4.3 billion euros ($5.6 billion).

The companies have a combined 55 percent of the French drinking-water market by population and 42 percent of the water treatment business, according to a 2012 report by the FP2E trade association, posing antitrust hurdles to any possible merger.

“There is no chance that they will be allowed to merge to create a super water player,” Dimitra Christakou, a water analyst at Bloomberg New Energy Finance, said by e-mail. “Between them they own probably over 50 percent of the global utilities market.”

Drinking-Water Market

About 70 percent of France’s drinking water market is in non-state hands and 56 percent of the water-treatment business.

The companies’ industrial waste businesses are vulnerable to economic weakness as factories cut output. Suez Environnement and Veolia have both said the divisions have been damaged by the downturn in European industrial production.

The possibility of the approach made to Veolia by Suez “might raise some market interest on whether Veolia could be a takeover target,” Citibank analyst Sofia Savvantidou wrote today. “Veolia could be a more likely target if an acquirer was based in a country with a less protectionist track record.”

In addition to competition issues in France, Suez Environnement and Veolia would have faced antitrust probes on waste operations in the U.K., Belgium, the Netherlands and Australia, according to the bank. The slow economy would make disposals more difficult and a combination between the utilities “unworkable.”

Suez Environnement Chief Financial Officer Jean-Marc Boursier is scheduled to comment on third-quarter earnings on Oct. 25 while Veolia will publish results on Nov. 7. Both utilities have announced plans to raise cost-savings targets and lower investment. Veolia wants to cut debt to less than 12 billion euros by the end of next year from 14.7 billion euros at the end of June.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net