International Power merger to create world leader

The deal comes after resuming talks aborted earlier this year and will allow GDF access to growth in emerging markets and give it a foothold in the UK and Australia.

International Power can expect to cut financing costs as a result, anticipating its credit rating to be lifted to investment grade, from BB now, it said.

"This is one of the few utility combinations that have always made sense, regardless of the economic environment," said a City analyst.

The deal is another example of a foreign player entering the British power market – where just two of the Big Six household energy suppliers are controlled by domestic firms – and follows the 2008 sale of British Energy to EDF.

GDF Suez will transfer a number of assets into International Power, in return for 70 per cent of the ownership in the new enlarged group. Existing International Power shareholders will hold the remaining 30 per cent.

International Power shareholders will also receive a special dividend of 92 pence per share, totalling 1.4bn – at the top end of analyst expectations – in exchange for relinquishing control of the company.

GDF declined to comment on the value of the deal, which analysts found hard to assess because the value of the assets GDF is transferring is not public.

International Power will stay listed and based in London and will have a market value of 18.6bn after the deal, based on its current share price. Its assets include the gas-fired plant at Saltend, near Hull. GDF Suez UK, meanwhile, employs 200 people in Leeds.

The combined company will have generating capacity of over 66 gigawatts (GW) and revenue of 84 billion euros.

The GDF assets will be transferred into the British firm with net debt of 4.4 billion euros, the companies said. GDF chief executive Gerard Mestrallet, who had been keen to avoid paying cash for the deal, said GDF would look to dispose of between 4 and 5 billion euros of assets to offset the negative effects of the deal on the group's balance sheet.

International Power's top management, including chief executive Philip Cox and financial director Mark Williamson, would retain their positions within the new company.