France faces fallout from Veolia’s bid to take over Suez, at home and abroad

Tensions are continuing to grow following Veolia’s attempted hostile takeover of rival Suez, despite French Finance Minister Bruno Le Maire’s calls for calm and hopes that a “useless war” can be avoided between the two giants of French industry. On August 30th, Veolia offered to pay €15.50 a share to buy 29.9% of water and waste management rival Suez from Suez’s parent company Engie, as a prelude to eventually taking over the entirety of Suez.

Engie rejected the initial offer on September 17th, with chairman Jean-Pierre Clamadieu explaining that the energy firm is not opposed in principle to selling the company with which it merged in 2008— but considers Veolia’s opening bid too low and is ready to consider other options. Suez, meanwhile, is adamantly opposed to the proposed takeover. The rival firm is accelerating its plans to divest itself of some existing assets amidst speculation that it may try to buy back Engie’s stake in the company to block Veolia’s bid, which it dubbed it “particularly hostile” and an “industrial mirage” with serious risks for the firm’s shareholders, employees and clients. In particular, Suez has highlighted the antitrust battles which would undoubtedly hold up a Veolia-Suez fusion.

Problems at home: disentangling Suez’s assets

First and foremost, French and European competition authorities are almost certain to have something to say about the proposed merger. The two companies together would have a combined market share of nearly 60%, and antitrust concerns already scuppered a potential merger in 2012. In a tacit admission that competition authorities would never accept a fusion without major concessions, Veolia has already indicated that it would spin off Suez’s water business—a business unit responsible for 11,000 jobs— in France to a French investment fund, Meridiam.

Whether or not Meridiam, a relatively unknown player which primarily specialises in construction and transport projects, has the know-how to manage France’s water network is a serious question. Though Meridiam manages some 80 projects around the world— from the port of Nouakchott in Mauritania, to the Miami Tunnel in the United States— taking on some of Suez’s assets would mark the fund’s first investment in the water sector, after failing in a 2018 bid to take over Saur, one of Suez and Veolia’s smaller competitors.

It’s also unclear whether merely offloading Suez’s French water management business would be enough to allay French and European competition authorities’ fears—Veolia’s CEO, Antoine Frérot, has also suggested that some waste management assets might have to find new buyers in order for a Veolia-Suez merger to get the green light. 

Problems abroad: trouble with regulators in China and Morocco?

Even if significant concessions are sufficient to satisfy domestic and European regulators, competition authorities may weigh in on the proposed tie-up to avoid a fused Veolia-Suez gaining a dominant position in their markets. A number of influential Chinese media outlets have already voiced serious concerns about Veolia’s bid: major news portal Ifeng and leading financial channel Hexun have raised the prospect that, while neither Veolia or Suez’s market share across China is extremely high, the company could form a water supply monopoly in some cities if a merger went ahead. Similarly, Sohu has suggested that Chinese competition authorities might take umbrage at the proposed takeover.

A strict Chinese antitrust probe of any Veolia-Suez deal does indeed seem extremely likely, especially given that Veolia has openly stated that one of its major imperatives in seeking to buy Suez is the creation of a “European champion” in the water and waste management sector which could go head-to-head with Chinese firms.

What’s more, while US and European antitrust authorities once held the crown for the strictest merger control, regulators in Beijing have become increasingly aggressive, requiring major concessions for mergers such as Bayer’s takeover of Monsanto. As a Hong Kong-based competition policy expert confirmed, “in only 10 years, China has become a global pillar of antitrust enforcement, at par with the United States and with Europe, with a strict merger control regime impacting many deals, and far-reaching investigations sanctioned by sometimes very high fines”. A Veolia-Suez union, given Antoine Frérot’s explicit acknowledgment that his company is hoping to get a leg up on Chinese competitors, could prove the perfect opportunity for regulators in Beijing to flex their muscle.

Nor is China the only potential overseas wrinkle in Veolia’s ambitions. The Moroccan press has also raised issues about the possible link-up, highlighting the fact that Suez and Veolia—both present in the North African country since the 1990s—represent, between the two of them, 60% of the country’s market for waste and water management. According to the Moroccan paper La Nouvelle Tribune, the country’s authorities were already keen to reduce French companies’ influence in Moroccan public utilities and have a particularly poor relationship with Veolia—something that doesn’t bode well for the chances that they would let a fused Veolia-Suez seize such a significant market share.

The age of European champions? 

The top brass at Veolia have had their eyes on Suez for more than a decade. The French press recently categorised Antoine Frérot’s desire to take over the rival firm as an “obsession”, while a former executive at Engie admitted that the Veolia CEO contemplated making a bid for Suez “morning, noon and night for five years”. By making his move now, Frérot is hoping to take advantage of the pandemic-induced financial recession sweeping across Europe, as well as tap into a groundswell of support for the idea of building European industrial giants that could compete on an even keel with American and Chinese behemoths.

There is still, however, little appetite for the creation of large European monopolies, whether at home—particularly under European Competition Commissioner Margrethe Vestager’s critical eye—or abroad. As Suez’s chief executive Bertrand Camus has warned, the process of attempting to untangle Veolia and Suez’s contracts and spin off enough business units to gain European regulatory approval could paralyse both firms for years—and it looks increasingly likely that the merger would face headwinds abroad as well.

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