Suez Case

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The initial seeds for a merger between Suez and Lyonnaise were sown in spring 1995, however the CEOs of both companies, after doing an analysis of the potential synergies and strategic fit, decided to delay the merger and instead refocus on strengthening both companies’ complementary businesses. Even before the merger, Suez and Lyonnaise had a history of joint investments as well as strong ties between their senior managers. By 1997, Suez also owned 18% of Lyonnaise.

At the time of the actual merger in 1997, the managers of both Suez and Lyonnaise saw different advantages in terms of major synergies, considering the current situation in their business sectors and their long-term strategic goals. Some of their arguments were:

1. There …show more content…

First, before the merger, the 12-month average share price of Suez and Lyonnaise was 32.99 and 76.16 Euro respectively. When the merger was announced, there was a slight dip in the share price of Lyonnaise (87.65 Euro), however it increased to 87.80 Euro by the time the merger was approved by both boards, and this shows a neutral if not even a positive reaction from the capital market. Also, immediately after the merger, the Suez Lyonnaise stock showed an increase from its base price on 20th Jun 1997 (date of merger) and reached a peak of 100% price increase in less than two years. Moreover, on comparing the Suez Lyonnaise stock with the Utilities Index for the period June 1997 to December 1999, the former was found to be performing much better, between 20-50 points increase, which translated into substantial value creation for its shareholders. During the same period, the Suez Lyonnaise stock mostly performed much better than the CAC 40 index too.
Second, if we look at the individual businesses of Suez Lyonnaise after the merger, all of them except for “Other” (non-core) have demonstrated a consistent increase in revenues, EBITDA, and net earnings, which again provides greater value to its shareholders. The “Other” businesses

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