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. Last Updated: 07/27/2016

French Fight Italian Bid With Merger

LONDON -- Suez and Gaz de France agreed to a 33.3 billion euro ($39 billion) merger to create the world's second-biggest publicly traded power and gas company and fend off a hostile bid for Suez from Italy's Enel.

The transaction will create a company that serves about 214 million gas, water and electricity consumers in four continents. The French government will hold about 40 percent of the new entity, blocking any bid from Enel or another suitor.

Gaz de France shareholders will get one share in the new company for every one currently held, a 3.9 percent premium over the average price in the past three months, the Paris-based companies said Monday. Suez shareholders will receive an exceptional dividend of 1 euro per share. The average premium in power and gas company takeovers in the past year is almost 11 percent, according to data compiled by Bloomberg.

"I am not disappointed by the small premium; when we bought Gaz de France, it was more for the long term story than for short-term profit," said Makis Agoros, who manages $3.6 billion at Meeschaert Asset Management in Paris. "It's good news for Gaz de France because the French state owns 80 percent of the company, and after the merger that will be reduced."

European Union steps to open national energy markets to competition have prompted a flurry of cross-border takeovers and bids, and spurred governments to seek companies big enough to survive.

Italy's Enel said Feb. 21 it was studying Suez's Electrabel unit as an expansion opportunity. The same day, German power utility E.On offered 29.1 billion euros in cash for Spain's Endesa.

Suez shares, which gained about 14 percent since the Enel statement, fell as much as 7.1 percent to 31.50 euros Monday and traded at 32.55 euros at 10:30 a.m. Paris time, valuing the company at 41.3 billion euros.

A spokeswoman at Rome-based Enel declined to comment Monday. The merger had been planned for months, the companies said.

Shares of Gaz de France rose 45 cents, or 1.5 percent, to 30.25 euros, lifting its market value to 29.7 billion euros.

"The immediate returns aren't there but in the long term this is positive," said Andreas Schneller, a fund manager at EIC Partners, a Zurich, Switzerland-based firm that manages $53 million.

"There are two ways for shareholders to get rewarded: instant rewards or long-term prospects, and in this case you get a very competitive player in the market, with good long-term prospects that can cut costs," Schneller said.

The merger will create a company with annual sales of 64 billion euros and lead to annual cost savings of 500 million euros, the companies said. The deal, which has the approval of the French and Belgian governments, will be completed in the second half of the year and no jobs will be lost, they added.

The French state, owner of 80 percent of Gaz de France, will hold slightly less than 40 percent of the combined company, French Finance Minister Thierry Breton said in an interview with radio station RTL Monday.