The two companies were placed on CreditWatch on 27 February, 2006, following the initial merger announcement.

"Notwithstanding changes in the terms of the merger it should still be overall beneficial for Suez and dilutive for GDF from a credit standpoint, in terms of both business and financial risk," said Standard & Poor''s credit analyst Hugues de la Presle.

"To resolve the CreditWatch placement, we will focus on the enlarged group''s strategy and financial policy," said de la Presle.

Although Suez is the larger and more diversified company, GDF''s business risk is lower, given the large share of earnings it derives from regulated French businesses. Likewise, from a financial risk perspective, although Suez''s financial profile has improved significantly, GDF still has much stronger credit ratios.

Under the revised terms, 21 GDF shares will be exchanged for 22 Suez shares, with no special dividend being paid. Initially the terms of the merger were a one-for-one share exchange plus a €1 billion special dividend to be paid to Suez shareholders prior to completion of the merger process. To mitigate the difference in the share prices of Suez and GDF, 65 per cent of the share capital of Suez''s environment arm (20 per cent of first-half 2007 Suez EBIT) will be spun off to Suez shareholders at the time of the merger, with the enlarged group retaining a 35-per cent stake.

These revised terms are a significant step forward but the merger still faces some hurdles, especially its approval by both groups'' shareholders; the signing of the decree allowing the privatisation of GDF following the passing of the law in the French parliament; and the opposition of GDF''s unions.