French president Nicolas Sarkozy is set to confirm a $120 billion merger between energy groups Suez and Gaz de France, creating the world’s third-largest power company and a new French global champion.

Although the deal was first muted in early 2006, it was resisted by Suez’s CEO, Gérard Mestrallet. He agreed after considerable arm-twisting by Mr Sarkozy. Sources said he had underestimated the “hyperpresident’s” iron will, but Suez directors could still unravel the highly political arrangement.

The proposed spin-off would enable the French state to retain a 34% stake in GDF-Suez. It currently owns 79.8% of GDF but has no holding in Suez. French law limits the state’s holding in the combined group at about third.

Sarkozy said the same day: “I have proposed to Suez that it merge its energy business with GDF … that presumes that Suez makes a strategic choice by specialising in energy.” The new group would rank third in the world behind Russia’s Gazprom and France’s EDF.