Suez could become a fully owned subsidiary of Veolia from 2022, says S&P

Veolia Environment S.A.’s bid to acquire global water and waste group Suez S.A would reinforce Veolia’s already strong business profile, according to S&P Global Ratings.

In a recent report, the ratings agency analyses how the proposed acquisition might transform the France-based utility’s credit profile.

Suez could become a fully owned subsidiary of Veolia from 2022, according to the latest assessment.

According to the ratings agency, adding Suez would turn Veolia into a global leader in water, environment, and energy solutions, with a stronger market position and greater diversification.

Suez’s inclusion would increase the Veolia group’s size to about €6.5 billion after disposals in 2023. Furthermore, Veolia’s management has previously shown its ability to integrate new businesses and deliver on synergies.

S&P sees Suez’s activities as slightly less volatile than Veolia’s owing to its geographic and business mix, notably thanks to operations in lower-risk markets and a larger share of contracted water and waste activities.

S&P foresees several potential stumbling blocks related to the takeover offer, which is considered hostile, given the understood opposition of Suez’s management and board to Veolia’s takeover.

This has led to ongoing legal disputes and operational challenges and the transfer of Suez’s French water activities to a Netherlands-based foundation. The latter could complicate the future disposal of such assets, a key part of Veolia’s plan to comply with anti-trust constraints.

At a time when macroeconomic trends are becoming more favourable for the sector globally and consolidation is poised to accelerate, S&P believes joining forces is likely to be positive. Should a full takeover not succeed, S&P believes Veolia would still increase its stake in Suez and become the majority shareholder. In this scenario, Veolia could fully consolidate Suez, in which case S&P’s business risk assessment would be similar to that under a full takeover situation.

S&P Global Ratings said it expects to gain greater clarity on Veolia’s proposed acquisition of Suez during the second half of this year but, for now, its base-case scenario is that Suez could become a fully owned subsidiary of Veolia from 2022.

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