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Suez linked to German duo
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March 24, 2000: 5:46 a.m. ET
Report: French utility in merger talks with Veba, Viag; shares advance
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LONDON (CNNfn) - German utility merger partners Veba and Viag are pursuing a tie-up with France's Suez Lyonnaise des Eaux to create one of world's largest electricity and waste management companies, according to a report published Friday.
Analysts praised the commercial logic of such a combination. The prospect of deregulation in European electricity and gas markets and mounting competitive pressures give companies an incentive to consolidate, they said.
 Suez management is believed to face pressure from shareholders to unlock the value of its media and telecom business by splitting it from its traditional utility assets.
Veba and Viag have seen their shares fall since agreeing their own  14.3 billion merger plan in November. Those declines mean a link with the smaller Suez could be presented as a merger of equals.
All three companies declined to comment on the report of merger talks in German newspaper Die Welt, though traders marked the shares sharply higher. Veba (FVEB) jumped 6.2 percent to 51.2, Viag (FVIA) rose 5.3 percent to 20.21 and Suez (PLY) gained 2.8 percent to 183.8.
"A merger] makes sense for Viag-Veba given the potential synergies in electricity generation," Paul Rogers at Commerzbank told Reuters. "German waste and water businesses are ripe for consolidation and they can use Suez's expertise there... the telecoms assets of Viag Veba are a good launch pad for Suez's move into [communications] from its French base."
The Veba-Viag combination will be Europe's largest publicly traded utility, with pro forma 1999 sales of 35 billion. A combination with Suez would see it leapfrog France's Electricité de France and Italy's NI.
 Suez, which had sales of 31.4 billion last year, operates the world's second-largest waste management business and has extensive international water and power assets after investing 15.7 billion on acquisitions last year in the United States and Asia.
However, the French company said in January that it planned to expand its small, loss-making communications arm by bidding for a new-generation mobile-hone license in France, developing a wireless local loop operation and bolstering its cable TV interests.
The company's shares had fallen in the latter part of 1999, in stark contrast to those of its French utility rival Vivendi (PEX), which has invested more heavily in media businesses. Suez stock climbed sharply after the company outlined its plans to move more aggressively into the media and telecom industries. 
-- from staff and wire reports
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