Talks Collapse Between GDF Suez and International Power on Asset Merger

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Researched by Industrial Info Resources (Sugar Land, Texas)--The unofficial talks between GDF Suez SA (EPA:GSZ) (Paris, France) and International Power plc (OTC:IPRPY) (London, England) regarding the merger of the companies' international assets have collapsed.

Although the deal had never been formally proposed, the two companies had apparently been in talks for several months about merging some of GDF's international assets outside Europe into International Power, with GDF holding a majority stake in the proposed group, while International Power's management team would be in control of operating the joint venture.

Had the deal materialized, the combined operation would have had a global installed generating capacity of 73,000 megawatts (MW), compared to International Power's current worldwide capacity of 32,358 MW. GDF has an installed generating capacity of about 68,000 MW (including power plants in France), making it the world's tenth-largest power producer. GDF plans to increase this to 100,000 MW by 2013.

GDF Suez was formed in 2008 by the merger of Gaz de France (Paris) and Suez SA (Paris) to form the world's second-largest utility company operating in the electricity, natural gas and renewable energy sectors. The company has generating facilities in Brazil, Thailand, North America, Latin America and Asia, although its major sphere of operation is in Europe, where it is the fifth-largest electricity generator.

International Power's generating capacity is spread worldwide: 7,000 MW in North America; more than 9,100 MW in Europe; more than 7,400 MW in the Middle East; 3,700 MW in Australia; and almost 5,000 MW in Asia. These are all areas that GDF has reportedly targeted for future growth.

It is unclear why the talks collapsed. In a press statement released on January 18, International Power reported that it "confirms that it has held preliminary discussions regarding a potential combination of International Power and certain power assets of GDF Suez. No agreement was reached between International Power and GDF Suez and discussions are no longer ongoing."

There is some speculation that with the talks for limited sharing of resources collapsing, GDF Suez may now launch a full-scale takeover bid for International Power. However, such a move will have more political implications than the potential sharing of assets.

A year ago, that Electricite de France SA (EPA:EDF) (Paris) acquired British Energy Group plc (East Kilbride, Scotland) in an $18 billion takeover. As the French government owns 35% of GDF Suez, political hackles would certainly be raised if the French company makes a takeover move on another British company.

Meanwhile, talks continue about a planned strategic partnership between GDF Suez and its compatriot nuclear power company Areva SA (EPA:CEI) (Paris). The two companies recently revealed that they have been in discussions for several weeks about the sharing of technology, particularly the development of the Areva third-generation nuclear reactor, Atmea.

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