A $92 Billion Solution for Suez?

Shares of the utility jumped after a French business magazine reported that Pinault was preparing a takeover bid

Is French retail and luxury tycoon François Pinault planning a post-holiday splurge? Shares in utility group Suez jumped more than 4% to an all-time high of €40 ($52.60) on Dec. 29, after a French business magazine reported that Pinault was preparing a $92 billion takeover bid for the Paris-based company as soon as next week.

In an article posted on its Web site late on Dec. 28, the magazine Capital said that Pinault, with President Jacques Chirac’s support, is planning a complex deal in which he would buy and then break up Suez. The company’s energy holdings would be sold to government-controlled utility Gaz de France for a reported €40 billion ($52.6 billion). Shares in Gaz de France rose 2.8% on the speculation.

At the same time, Suez would spin off its water and waste businesses, potentially to Paris-based utility Veolia, which was once part of the Vivendi conglomerate. Veolia shares rose 9% on Dec. 29. Lastly, parking and construction giant Vinci might pick up some of Suez’s international infrastructure. Vinci was flat on the day.

If true, it’s an intriguing scenario. Chirac’s government has been trying to create a French national energy champion through an engineered merger of Suez and Gaz de France, but the effort has bogged down in regulatory and political maneuvering. Breaking up Suez and selling its energy business to Gaz de France would sidestep many of those obstacles.

It would also placate key Suez shareholders who contend that a breakup of the company would unlock more value than the proposed merger. One such shareholder, Eric Knight of New York-based Knight Vinke Asset Management, issued a statement Dec. 29 praising a possible takeover bid as "a very positive development."

But will it happen? Chirac’s staff quickly issued a statement denying he had supported a takeover bid by Pinault. The government continues to favor the merger between Suez and Gaz de France, Chirac’s spokesman said. Gaz de France said it had held no discussions about a possible deal with Pinault. Representatives of Pinault could not be reached for comment.

Perhaps the biggest question is why Pinault would want to buy Suez. Clearly, he’s not interested in owning power plants and waterworks. The PPR Groupe, controlled by his family holding company Artémis, has steadily narrowed its focus in recent years to concentrate on retailing and luxury brands such as Gucci and Yves St. Laurent.

If Pinault pursues Suez as a purely financial maneuver, he’s unlikely to reap a windfall, says Marc Watton, a London-based utilities analyst with BNP Paribas. Watton doesn’t think Suez’s breakup value would be much more than $92 billion. "I simply don’t see what would be in it for him," he says of Pinault.

Such skepticism, along with the denials from Chirac and Gaz de France, could explain why Suez shares are already starting to taper off. After their peak on Dec. 29, they fell to €39.23 at the close, up 2.56% for the day. Shares in Gaz de France and Veolia held steady after early gains. This is one post-Christmas sale that may never happen.

Before it's here, it's on the Bloomberg Terminal.