The UK’s Competition and Markets Authority (CMA) is currently reviewing waste and water management giant Veolia’s takeover of Suez, with an initial decision due at the beginning of December. At the same time, the EU’s competition authority is also set to deliver its verdict this month on whether to let the merger proceed in Europe, after many months of wrangling between the two sides.
In a bid to pre-empt any concerns over competition and antitrust legislation, the two companies have proposed to create a “New Suez” spin-off, which will retain control over all the existing company’s French activities and around 40 per cent of its total assets. Considering the magnitude of the deal and the length of the discussions taking place with antitrust authorities, it is likely that Veolia may need to divest other assets to appease antitrust concerns. Union leaders representing Suez employees have also alleged backroom collusion between the two CEOs in question, President Macron’s chief-of-staff and the chairman of investment fund Meridiam, which will serve as a major stakeholder in the rump Suez outfit after the acquisition is completed.
Should the “influence peddling” inquiry sparked by those allegations unearth any skeletons in the dealings between the named parties, the entire endeavor risks ending up being taken off the table.
Negotiations behind the merger of the two largest privately owned water companies stretch back more than a year and have involved a good deal of posturing on both sides. Veolia, the bigger of the two entities, first began pursuing a deal last autumn, provoking strike action from Suez workers opposed to the takeover. At the time, the European Federation of Public Service Unions (EPSU) noted that the deal would not be in the interests of workers nor consumers, but would rather serve those of the boardroom alone.
In response, a French court ruled that the unions must be consulted over any sale of Suez interests to Veolia, but that merely delayed (rather than derailed) the process. Veolia initially acquired a 29.9 per cent stake in Suez from Engie in October of last year, paying €18 per share. Sensing weakness in his old rival, Veolia’s CEO Antoine Frérot then pressed his advantage by lowballing Suez with a €15.50-per-share offer for the remain 70.1 per cent – but his gambit backfired, creating further bad blood and preventing a conclusive agreement at the time.
After eight months of stalemate, a compromise was finally struck this April, when Veolia agreed to pay €20.50 per share in a deal worth some €13 billion.
In a bid to ward off any objections to the takeover, the parties involved have proposed selling 40 per cent of Suez assets to a consortium involving Meridiam, infrastructure fund GIP, public sector financial institution Caisse des Dépôts et Consignations (CDC), and employees from the company. However, the latter party are not impressed, with five different unions filing complaints about influence peddling involving French Secretary General Alexis Kohler, who allegedly put pressure on the companies to push through the deal. As a result, French financial prosecutors have opened a probe into the accusations, the revelations of which could have serious repercussions for the CMA and EU reviews.
For its part, Meridiam has claimed that it is a company with a mission to prioritize sustainability and a plan to “strengthen the presence and leadership of Suez in France and internationally”. However, recent revelations that Meridiam CEO Thierry Déau is not satisfied with a 40 per cent stake in New Suez has put the French government back on edge. In light of the influence peddling inquiry already underway, any moves made by Déau to gain control of additional parts of the New Suez spin-off – especially after competition authorities make clear what components need to be spun off to secure approval – could jeopardize the fragile truce between the two firms, their employees, and the French state.
Aside from any malfeasance on the part of the French government or underhanded machinations from the parties involved in the merger, there is also a wider concern about what this tie-up could mean for consumers in Europe and further afield. Given the ballooning global population and the uncertain future of a world plagued by climate change, water is likely to become an even more precious resource in the years ahead. Critics warn that Veolia’s takeover of Suez will create a “dangerous monopoly” that only serves to commodify and privatize that resource further – and that everyday citizens are those most likely to suffer as a result.
It’s not a problem limited to France or to water, either. The global reach of Veolia in other areas after it swallows its rival should not be underestimated. For example, 75 per cent of waste collection contracts in London are currently handled by one of the two behemoths. By combining them together, small companies will find it increasingly difficult to compete. As such, entrusting the stewardship of public services like water and sanitation to an unaccountable monopoly could end up being a recipe for disaster.
Ultimately, the job of the UK and EU competition authorities is to make sure that this merger won’t harm the two companies’ customers. Given their combined dominance of the market in many countries where they operate, the answer to that question is far from a given.
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