Corporate Environment Analysis – The Case of the Gaz de France-Suez Merger
Based on the BBC News article "Confidence behind French gas deal" by Theo Legget
Term Paper 2006 17 Pages
1 Executive Summary
This paper aims to analyse the key drivers for a change in a certain sector. It is based on a strategic event, the proposed merger of Gaz de France (GDF) and Suez, two of France's largest energy companies. The merger was announced in February, 2006, when it was revealed that Italian utility Enel was preparing a takeover bid for Suez (Kanter, 2006). The deal raised criticism by executives at Enel, Italian politicians, and EU officials, who assumed protectionist motives within the French government (ibid.). In June, 2006, the European Commission launched a full-scale investigation, since it also feared serious competition implications on energy markets in France and Belgium (Milne, 2006). Politically, the merger is extremely controversial in France, as it requires a further privatisation of GDF, reducing the government's stake to only 34 per cent, while the present legal minimum is at 70 per cent (Greenwood, 2006; Reuters.com, 2006).
The key stakeholders are the boards of directors of both companies GDF and Suez, the French government, the Suez shareholders and the European Union (EU). Their examination revealed several ethical issues. Many of these are rooted in highly conflicting (political, economic, or social) interests and relate to the justifiable degree of coercive power being used to ensure that these interests are served.
In the following, analyses by means of PESTLE and five forces are undertaken to evaluate specific factors and their interrelation for the relevant corporate environment. Then, a further examination of the competitive background reveals two key drivers. First, underpinning the findings from the PESTLE analysis, the political environment is a dominant factor. The energy sector involves conflicting interests of many political groups and individuals in a domestic and EU-wide context. Thus, the political environment acts as a key driver, along with its strong influence on most other factors, in particular, economic and legal issues. The second key driver, mainly reflecting results of the five forces analysis, is supplier power. Indeed, much of the competition is rooted in pressures from the suppliers. France and Belgium, almost totally dependent on imported gas under long-term contacts, are facing increasing influence from key suppliers, in particular Russia's Gazprom. In order to limit dependency on dominating suppliers or countries, European energy utilities might choose either to diversify their portfolio by offering a broader range of energy products, or to augment buyer power by merging with other companies. In fact, both directions have a bearing on the strategic event here.
2 Organisational Background
Founded in 1946 by the French government, Gaz de France (GDF) is engaged in production and distribution of natural gas and related infrastructure and customer services. Based in Paris, the company serves both domestic and international markets and caters to over 14 million customers in 30 countries worldwide (Datamonitor, 2006a). Nonetheless, as stated in the organisation's annual report in 2005, GDF primarily focuses its activities on distribution, transmission and marketing subsidiaries throughout France and Europe (Gaz de France, 2006a). In 2005, GDF recorded revenues of €22.4 billion, according to its corporate website (Gaz de France, 2006b).
Until recently, the enterprise was an EPIC, an etablissement public a caractere industriel et commercial, a special status sometimes defined as a “state agency operating as a business” (Datamonitor, 2005c). Due to this distinctively French concept, the French government retained a stake of about 80 per cent in GDF when the company went public in 2005 (Datamonitor, 2006a). The projected merger with Suez would enable GDF to offer gas and electricity as a single supplier, as stated by its CEO, Jean-Franfois Cirelli (Gaz de France, 2006a).
Suez is a Franco-Belgian private industrial company based in Paris. It provides electricity, natural gas and energy services for companies, individuals and municipalities, as well as water and waste treatment (Datamonitor, 2006b). Its overall revenues in 2005 amount to €41.5 billion. Although operating in more than 130 countries, Suez has a particularly strong presence in most European countries - accordingly, 79 per cent of its revenues are generated in Europe (Datamonitor, 2006b; Suez, 2005). Belgium is its largest geographical market, having generated 26.4 per cent of revenues in 2005, followed by France, with a proportion of 23.4 per cent in the same fiscal year.
Regarding the announced merger with GDF, Suez representatives are optimistic in their outlook for 2006 (Suez, 2006a). As has been pointed out by the company in the same report, the deregulation of the energy sector in 2007 is expected to provide considerable opportunities for the newly created group (ibid.).
3 Ethical Issues for the Stakeholders
In order to fully understand the ethical issues arising in the examined strategic event, it may be useful to identify the stakeholders affected by it. First, in this context, the stakeholders are classified by means of a Power-Interest matrix, as shown in Figure 1:
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Fig. 1. Power-Interest matrixforstakeholder prioritisation (adapted from Dutta and Burgess, 2003)
In general, private consumers are interested in stable gas prices. As these are controlled by the state and private consumers normally have low power in a de-facto monopoly market, both their interest and power seem limited. This is true for business customers as well, albeit their interest might be increased, due to their usually higher energy consumption and longer- term contracts. Trade unions and the employees of both GDF and Suez are of course expected to have a high interest in this matter. However, their actual influence seems somewhat limited: even by means of strikes - quite a common option in France - neither employees nor unions could ultimately prevent the merger itself. Also, suppliers have a relatively high power in the European gas markets, but the author concludes that their power would be insufficient to stop the proposed merger. Their motivation in doing so is limited at this point, as long as their interests are served.
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- University of Glamorgan – M.Sc. Management Scheme
- 70/100 credits
- Corporate Environment Gaz de France Suez Gazprom PESTLE Five Forces 5 Forces Energy Sector Merger Change Stakeholder Analysis Strategy Strategic Management Ethical Issues