Veolia to proceed with EPO on Suez

Written by Nicolas Guignard

A month after purchasing almost all of Engie-own Suez, CEO Antoine Frérot says “No obstacle shall stop us”. His goal is to become the majority shareholder.

Both companies are considered jewels within France’s decaying industrial landscape. Suez – heir of the prestigious ‘Compagnie universelle du canal maritime de Suez’, the company which handled the excavation and administration of the Suez Canal until its 1956 nationalization – is now a leading multinational specialized in the distribution of energy and waste related services, namely handling gas, electric and water infrastructures, from extraction sites to power plants to distribution. Suez is especially present in the water and waste management market, which also represents its historical sector. Veolia specializes in the handling of canalisations along with that of waste.

After experiencing severe financial difficulties throughout the 2000, 32% of Suez was purchased by a company now called Engie. Engie is another leader in the French energy market. While the merger secured Engie’s position as a behemoth within the energy market, the lack of synergy between the companies led to a lack of opportunities, both in France and abroad. Besides, Engie was privatized, and free from state tutelage, it decided to focus on its historical activities (namely gas) along with a massive investment in renewable energies. It was therefore decided to sell Suez, and Veolia, saw this as an opportunity to consolidate its share of the water market. Indeed, with Suez under its control, Veolia would become the uncontested leader holding over 50% of the market share.

The first act was thus played between Veolia – the predator –, Suez – the prey –, with the French state as a worried referee. France is the first shareholder of Veolia (from which it owns 5.7% of the capital) and owns 7% of Suez through Engie. In the midst of the dreadful pandemic induced economic crisis, France wished for guarantees regarding employment, and watched in horror as Suez and Veolia rival in savage declarations and no friendly agreement can be found between both parties. Suez is adamantly against the merger but can only watch as Engie agrees to sell 29.9% of Suez (it owned 32%) to Veolia, even as the French state voted against and most of Suez employees (which own 3% of Suez) and the almighty trade-unions were against the sale. The transaction was settled for €3.4 bn, or €18 per share.

Now begins the second act: the EPO on the remainder of Suez’ capital. Three main problems arise, however. First, Veolia does not enjoy voting rights for now, as Suez’ trade-unions started a judicial procedure against the transaction claiming they were not consulted. Second, the antitrust authorities of both France and the European Union must approve the merger, which Veolia believes to last between one and two years. Veolia will in all likelihood be forced to cede some of its assets in order to maintain concurrence in the water and waste markets. Should Veolia overcome those two obstacles, it must still absorb 20.1% of Suez to become a majority shareholder. This could prove nearly impossible. Activist fund CIAM already reminded Suez’ board of directors of its ‘fundamental duties’, namely preserving the integrity of the group. This offensive, should it succeed, would prevent Veolia to sell ‘Suez Eau France’ to CIAM’s rival Meridiam, a prerequisite to the approval of the merger by the antitrust authority. Meridiam is also Veolia financial backing, and could decide not to proceed if its prize is taken away/

Veolia’s CEO Frérot still believes the EPO will take place and is determined to overcome each and every obstacle that Suez put on his way. He wants to turn the newly augmented Veolia into the spearhead of the fight against climate change, by developing its carbon capture activities. Frérot believes that should the two companies not join forces, respectively 3% and 2% they weigh in the waste and water management global market should in the long term be purchased by more competitive Chinese or American competitors.