Hasn’t history taught us to be wary of empires built on pyramids of quoted companies? Yet one of the UK’s two main power generating companies is about to find itself as the middle bricks of just such a pyramid – a quoted company controlled by another yet owning the majority of subsidiaries that are themselves listed.

GDF Suez (EPA:GSZ), the giant French utilities company, is injecting £13bn or so of global gas and electricity businesses into Britain’s International Power (LON:IPR) group, one of the generators, along with PowerGen, privatised 20 years ago.

If it surprises you that a French company is giving up control of such capacity read on: GDF is injecting these assets in return for a 70 per cent stake in International Power. So while the UK company remains a quoted company listed on the London Stock Exchange, it will be a subsidiary of the very-French GDF.

Yet GDF is not the top of the pyramid. The French government owns over 35 per cent of its shares – indeed, by law the state has to own at least a third of the equity. That’s not control you may say, but the French government also has a “golden share”, six directors on GDF’s board (mainly civil servants and heads of other nationalised industries) and the finance minister has to give approval for any strategic disposals.

Nor will International Power be the bottom of this pyramid because the deal will mean it is the majority holder of quoted subsidiaries in Pakistan, Thailand, Chile and Peru.

So those quoted companies across Asia and Latin America are controlled by the UK FTSE company, which will be controlled by a company listed in Paris that is a puppet of the French government.

It was through such pyramids of listed vehicles that entrepreneurs such as Robert Maxwell, Jimmy Goldsmith and Conrad Black ran their empires. They are a way to control vast empires from a small base. By owning 51 per cent of a firm that holds 51 per cent of another that owns 51 per cent of a third, the person at the top of the pyramid can hold command over the whole base at minimal cost.

GDF will be able to consolidate the whole of International Power into its group accounts, even though it owns only 70 per cent (with a standstill agreement to stop its stake being diluted). Debt and cashflow are likely to become intermingled, even though the UK company has £5bn of minority shareholders.

The law may allow this multi-tier corporate structure, but stockmarket have their way of punishing any fear that they will work against minority investors’ interests. Yet if the stock of International Power languishes because of the dominant shareholder, that merely makes it cheaper for the majority holder to mop up the remaining shares.

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