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French utility firms Suez and Gaz de France have agreed to finalise their merger after 18 months of legal wrangling.

The merger will create Europe's second largest utility, after Electricite de France, and the world's fourth biggest energy group.

It has been confirmed that the resulting business is to be known as GDF Suez, with the French government to retain a stake of more than 35 per cent in the new firm.

Merger talks between state-controlled GDF and Suez were originally undertaken amid the desire of French officials to prevent Suez being taken over by Italy's Enel.

In a joint statement today the two companies said that the planned merger would result in confirmed synergies of around €1 billion (£0.68 billion) a year.

"With a combined stock market capitalisation of approximately €90 billion (£61 billion) and revenues of €72 billion (£49 billion), GDF Suez will be one of the leading global energy companies, in particular in gas and electricity," the French utility groups stressed.

Under the terms of the merger deal 21 Gaz de France shares will be exchanged for 22 Suez shares. Suez will also divest 65 per cent of its water and waste management operations.

Analysts say there had been fears that the merger talks between Suez and the office of French president Nicolas Sarkozy, acting on behalf of GDF, could collapse.

It is claimed that Suez and GDF had to agree to new terms following the announcement of their original merger plans last year, with the former having expanded faster than its state-controlled rival in the intervening period.