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UPDATE 3-Suez rebuffs Veolia's assurances it will not make hostile bid

    * Suez's rebuff follows new guarantees given by Veolia
    * Suez still supports potential counter-bid by Ardian
    * French government asks Suez and Veolia to reach an
agreement

 (Adds finance minister's quote)
    By Gwénaëlle Barzic and Mathieu Rosemain
    PARIS, Oct 4 (Reuters) - French utility Suez           on
Sunday rejected assurances from rival Veolia          that it
will not make a hostile bid for the whole company after closing
in on a deal to buy a 29.9% stake from power group Engie
          .
    Veolia          said it would not launch a hostile bid for
the remaining shares in Suez and that any bid for the rest of
the shares would require approval from Suez's board.
            
    Veolia had moved closer to a deal to buy Engie's 29.9% stake
in Suez on Wednesday, in a prelude to a full takeover bid and
marking a breakthrough after weeks of hostilities between the
two utilities.             
    Veolia had removed certain conditions and clauses from the
previous outline of its agreement with Engie to persuade the
different parties that it would seek a consensual deal. 
    But in a letter from Suez Chairman Philippe Varin to
Veolia's boss, which was made public, Varin said the Suez board
considered Veolia's approach as hostile.             
    The French state, which has a 24% stake in Engie, is closely
monitoring the situation. In a hastily arranged call with
reporters on Sunday, Finance Minister Bruno Le Maire called on
Veolia and Suez to resume talks to reach an agreement. 
    "Some progress was made yesterday and this morning in the
talks between Suez and Veolia," he said. 
    "We wish that Veolia and Suez find common ground ... which
is the only way to preserve the workers' interests as well as
the industrial interests of the nation."
    Suez has fiercely rejected Veolia's approach and is
supporting a plan by French private equity group Ardian to pull
together an alternative bid for Engie's stake in Suez.
            
    Veolia has also told Suez it would extend the scope of the
assets to be sold to a would-be buyer of Suez's French water
activities to include its international water assets.
    The businesses that could potentially be sold to smooth the
way to the Veolia-Suez deal would yield total turnover of 5
billion euros  ($5.86 billion), including the 2.2 billion euros
generated by Suez's French water business. 
    Veolia has raised its bid to Engie's Suez stake to 3.4
billion euros. The additional guarantees it offered on Sunday to
Engie's board will make that acquisition possible, Veolia said
in the same statement.             

 (Reporting by Mathieu Rosemain, Gwénaëlle Barzic, Leigh Thomas
and Sarah White; Editing by Toby Chopra/Barbara Lewis/Jane
Merriman/Giles Elgood)
  
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