Suez to spin off water and waste division

State-owned Gaz de France (Pink Sheets: GZFC) is pushing forward with plans to merge with Paris-based Suez (NYSE: SZE), announcing yesterday that a majority of Suez's water and waste division would be spun off as part of the merger.

An initial public offering of Suez Environnement will take place at the same time as the merger, an all stock deal expected "as early as possible" in 2008, according to the companies.

Suez and GdF said the IPO of the Environnement division will enable the unit "to benefit from better exposure with direct access to the financial markets as well as the support of a stable shareholding to pursue its strategy of dynamic development."

Competitor Veolia Environnement (NYSE: VE) has been rumored to be interested in the unit, but Suez chairman and CEO Gerard Mestrallet said there is "no risk" of a takeover bid being launched for Suez Environnement.

He said the environment unit would be protected by a stable core of shareholders representing almost half of the shares.

The newly merged group, to be called GdF Suez, will hold 35 percent of Suez Environnement, with major Suez investors, including banking giant Credit Agricole and state-run nuclear power company Areva, holding 12 percent.

France has been accused of protectionism in proposing the original merger in February 2006 to block a hostile bid for Suez from Italy's Enel.

Originally touted as a merger of equals, Suez shareholders will end up with 55 percent of the new company, with the French State holding more than 35 per cent of the capital of GdF Suez.

The government currently holds 80 percent of Gaz de France.