EU targets French water firms in antitrust proceedings

Veolia Environnement, Suez Environnement and SAUR are under investigation by the European Commission for possibly coordinating on price fixing for water and waste water services in France. AXA PE and Cube are shareholders in SAUR.

The European Commission (EC) has opened antitrust proceedings against French water firms Veolia Environnement, Suez Environnement and SAUR – along with Federation Professionnelle des Enterprises de l’Eau, their trade federation – to find out if the companies colluded to fix prices for water and waste water services across France.

The EC will investigate whether the above mentioned firms have “coordinated their behaviour on French water and waste water markets, in breach of EU antitrust rules,” the EC said in a statement. “The Commission will examine whether the undertakings concerned their behaviour in markets for water and waste water services in France, in particular with respect to elements of price invoiced to final consumers,” the EC added.

However, the EC warned that “the opening of proceedings […] does not prejudge the outcome of the investigation”. A spokeswoman for the Commission refused to speculate on the outcome of the investigation and whether it could lead to possible asset sales.

The antitrust proceedings are effectively the second act of an investigation which started with a surprise raid on the three companies by regulators in 2010. In a statement at the time, the EC said that it wished “to verify that the companies inspected have responded to public calls by local authorities to delegate the management of water services and sanitation”.

According to data from the Federation Professionnelle des Enterprises de l’Eau, the three water companies have a combined market share of 69 percent for water distribution and 55 percent for water treatment – two markets worth a combined €12 billion a year.

For French infrastructure fund managers AXA Private Equity and Cube Infrastructure, the antitrust proceedings are likely to cause another headache in relation to their investment in SAUR. 

Late last year, AXA PE and Cube had to deal with takeover threats by Seche Environnement – one of SAUR’s largest shareholders – which proposed to exercise a call option that would allow it to increase its 33 percent stake in SAUR to 51 percent.

The call option could see Seche buy an extra 18 percent shareholding from the Fonds Strategique d’Investissement (FSI), a fund affiliated to state-backed Caisse des Dépots et Consignations (CDC) and SAUR’s largest shareholder, with 38 percent of the utility. AXA PE (17 percent) and Cube Infrastructure (12 percent) hold the remainder of SAUR.

The problem is that any bid for majority control of the company would trigger a clause in SAUR’s debt covenants that could pave the way for banks to demand an immediate refinancing of the circa €2 billion in debt that SAUR holds in its books. Its existing debt is priced at comparatively cheap 2007 levels, meaning any refinancing could raise the cost of servicing the debt significantly.

Seche’s call option expires on May 26, 2012.