Suez Case

Topics: Stock market, Stock, Investment Pages: 7 (2114 words) Published: January 10, 2015
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 was little competition between them in the domestic markets, France and Belgium, so there will be no direct cannibalization of revenues in their strongest markets 2. Both companies had a common strategy of pursuing internationalization, and this was in alignment with their goal of achieving high revenue growth internationally 3. In the international market, they had a complementary geographic presence and this will help them quickly gain dominant market share in various parts of the globe 4. Both companies offered complementary services, meaning that they would be able to create operational synergies for the public utilities business as well as for the industrial customers 5. The merger offered a financial synergy that would help in the overall group growth, as Suez had a “healthy” liquidity while Lyonnaise, after restructuring, had a relatively high debt ratio

This merger was primarily a horizontal integration (waste and communication divisions are some examples) as most of the revenues would be derived from businesses that were competing in the same industry. There was in part a vertical integration for other divisions (for example water, energy and construction) as they were not working in the same industry level but could benefit from the merger as it improves their value chain activities. The management’s arguments, as listed above, are convincing due to several reasons. First, the merger of both companies made it possible for Suez Lyonnaise to create a coherent product range and integrated one-stop environmental services package for their core businesses (Energy, Water, Waste), to cater to the public utilities and growing industrial segment. Without the merger, these companies would have taken a lot of time, if at all, to become one of the two global players to offer these integrated products and services. Second, the merger helped them become either the market leader or number 2 in their core businesses, and this brings in advantages such as cost savings through economies of scale, sharing activities, synergies, etc. This was essential for Suez Lyonnaise’s strategic goal of becoming the global leader in environmental services. Third, the growth outlook for the energy and environmental businesses shows tremendous potential due to macro-economic trends such as increasing public service privatization, outsourcing of environmental services by large industrial companies, and increased demand for environmental services by specialist companies. Looking at this attractive industry potential, the merger was justified because it helped Suez Lyonnaise quickly develop competitive advantages and carve a niche position for itself, relative to its competitors.        One general flaw in the overall merger process may have been the fact that Suez did not do a diligent merger planning process i.e. screening various targets, shortlisting and then selecting the target. Apart from the positive arguments, Suez may have decided to merge with Lyonnaise also for the fact that they had a strong history, and Suez held 18% of Lyonnaise. Analyzing the merger decision, we believe that they were convincing with their arguments. They were logical and made sense as they were taking into consideration...
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