Gaz de France and Suez on Monday cleared the way to create the world's third-largest electricity and gas company after their boards approved the revised terms of a politically charged merger.
The "merger of equals," first drawn up 18 months ago but delayed by disputes over valuation and control, will be on the basis of 21 Gaz de France shares for 22 Suez shares and involves the spin-off of Suez's water and waste-management activities.
Excluding the environment business, the new GDF Suez is valued at around 78 billion euros ($107 billion), making it the third-largest power utility after France's EDF and Germany's E.ON.
The groups announced their agreement in a joint statement after a weekend of intense discussions to solve a financial impasse that threatened to torpedo the deal.
Their boards met late on Sunday to approve terms hammered out in government offices after French President Nicolas Sarkozy put pressure on Suez to abandon most of its historic water and waste-management assets and focus on electricity and gas.
Under the new deal, Suez will divest 65% of its environment activities -- which analysts give an enterprise value of 18 to 20 billion euros -- through a stock market listing, which will take place at the same time as the merger.
GDF and Suez saw their shares fall 4% each to 35.20 euros and 40.12 euros respectively by as investors locked in profits on the stocks, which rallied more than 8% last week, traders said.
The water spin-off was needed to slim down Suez to preserve a politically acceptable merger of equals with the smaller GDF, sources close to the talks have said. The 65% environment business stake will be distributed to Suez shareholders.
Analysts said there was scope for savings for both companies. "There's clearly a lot of overlapping in Belgium and France," Marc Watton, from BNP Paribas, told CNBC. "They are going to be big in upstream gas and downstream electricity in Europe."
Formation of GDF Suez will be completed as early as possible in 2008, the companies said.
The merger implies the privatization of Gaz de France, a move strongly opposed by unions and opposition Socialists, with the French state due to hold "more than 35%" in GDF Suez, compared with its current GDF stake of around 80%.
France's largest energy union, CGT, said it was making contact with other unions and consumer groups about a strategy to oppose the merger, and said striking was one option.