the two are not exclusive the decrease of costs

Several commentators are surprised by the significant increase in the course of EDF's stock exchange after the announcement of the merger of France gas and Suez, while instead of the two groups marked a slight decrease. Is it a sign of irrationality, so often mentioned in the financial markets Indeed, had it not simultaneously prospects for significant synergies for both candidates for merging (EUR 500 million per year), and a hard blow for EDF to the rapid emergence of a competitor

Experience in mergers and acquisitions operations as well as the lessons of economic theory suggest us instead an any other interpretation of market news. As recently in the sectors of the distribution, the chemistry-pharmacy, Bank-assurance, current connections in the energy sector are largely of a logic of increasing size to achieve economies of scale.

How to evaluate the synergies expected from such operations Even if this measure is necessarily imperfect, the variation in stock market instantly reflects the profits expected from the restructuring. In General, industrial control catches allowed positively by financial markets, the increase in the combined value of the two companies involved increasing the order of 7, essentially the rest for the benefit of the shareholders targets. Horizontal operations are on average overall more profitable than others, and especially for the purchasers.

The operation launched on Suez is no exception to the rule with a cumulative increase of stock market of more than 13 of the French group between 21 and February 24, after the disclosure of the intentions of public offer of Enel. the gain for Suez remains positive (but smaller) following the decline in the course of the order of 5 on 27 February, the announcement this time of the merger with gas of France. For gas of France (technically the acquirer), the course which had increased before the announcement of fusion also recorded a decrease of 5 on 27 February. In summary, stock responses reflect the anticipation of gains achievable by the merged entity, the parity for the exchange of actions seem to benefit the shareholders of Suez (even if the gain is less for them than that would have permitted the public offer of Enel).

Course why If the new constituted group win in competitiveness, should actually be observed a decrease in the course of the competitor became relatively less effective. This would be forgetting that the source of the gain expected from the merger may also come from an increase in the concentration of the industry. Rather than (or in addition, the two are not exclusive) the decrease of costs, it would then be the increase in market prices which would be responsible for the increase in profits. In this case, competitors benefit also from the increase in the prices of products from a lesser competition. Logically, the course must therefore increase (and not down as in the first case) to the announcement of the merger of competitors.

It is obviously difficult to conclude that it is the main explanation for the positive response of the courts of EDF to the announcement of the merger Suez-GDF: the announcement of a first acquisition in a sector may announce the start of a wave of future operations; in the case of EDF, the probability that, in the future, EDF becomes in turn the target of other operators is low. However, if the merger benefits (but less than the offer of Enel) to the shareholders of Suez, possibly those of SFM, it is less sure that it benefits consumers and be economically efficient. We have no doubt that the authorities of Brussels will analyse in depth this important aspect of the project.