Putin let loose his whooper at talks with his Ukrainian counterpart, in name only, Mykola Azarov, on Russia's Black Sea coast at Sochi.
It was made at a joint press conference, and Azarov, said he was suprised by the 'impromptu' statement.
Owned by the state, Naftogaz is the exclusive importer of Russian gas into Ukraine and about 20 percent of the EU's gas needs flow through its pipelines.
Ever the political opportunist, Yulia Tymoshenko -- the peasant-braided ex-energy queen who lost to Yanukovich in the last presidential poll -- immediately denounced the idea.
"This proposal to merge Gazprom and Naftogaz... could be taken as a joke, if every day an extensive plan to liquidate Ukraine's independence wasn't taking shape before our eyes," she said in a statement.
While Ukrainian officials were blushingly brushing off Putin's proposal, the Russians were telling a different story.
Alexei Miller, the CEO of Gazprom, said negotiations on the issue could start as soon as mid-May.
A Putin spokesman, Dmitry Peskov, told the Reuters news agency the deal could entail an equity swap between the two firms, with Ukraine possibly exchanging its 100 percent holding in Naftogaz for a corresponding stake in Gazprom.
Peskov said, "We are talking about a [sic] creation of a single company."
To sweeten the deal, Putin also said export duties would be scrapped on all gas deliveries to Ukraine.
But Putin wasn't done pulling goodies out of his bag for the destitute Ukrainians, socked in the solar plexus by the global downturn and now begging hat in hand to the IMF for money.
Putin said the Russian state bank VTB is ready to offer Ukraine a $500 million loan.
Talking heads in Ukraine were calling a spade a spade: Russia is trying to grab control of Ukraine's assets and subordinate the country to Kremlin rule.
"Russia's objective is to take control of the Ukrainian pipelines and they will try to do this in any way," said Viktor Chumak of the International Centre for Policy Studies in Kiev in an interview with the AFP news agency.
"This merger will allow them to seal this control," he added.
Others were sceptical a deal can be done.
Chris Weafer, chief strategist at Russian brokerage Uralsib, said it would be "an impossible merger".
"I think that the two companies are different animals in terms of size and transparency," he told the Reuters news agency. "I don't think that Ukraine would agree to a merger."
Weafer said Gazprom's size meant it would completely dominate any joint company. "And that would be unacceptable to the Ukrainian public," he added.
Medley Global Advisors' analyst Douglas Busvine said valuing Naftogaz, which is not a public company, does not disclose its financials and had restructured its debt last year, would be difficult.
"Naftogaz is not viable as a going concern but they have some assets that are worth something," he told Reuters.
I guess we can now expect the president of Ukraine to make the case that a merger makes good sense for all sides involved, except the people of Ukraine.