http://online.wsj.com/public/article/SB115935582304975381-X7Gnm5nCCCI6c_8Gv3Ri8RUOBZ4_20061004.html?mod=regionallinks
German utility E.On AG's richer offer for Endesa SA is expected to clinch an
approval from the Spanish power company's board, according to people close to
the matter, a move that could close an acrimonious 13-month takeover battle and
open the door to a broad remodeling of the European energy sector.
Should E.On's ?7 billion ($47 billion) all-cash offer go through, one of the
first effects could be an acceleration of a merger between Iberdrola SA and
Union Fenosa SA, Spain's second- and third-biggest electricity companies. That
would create another Spanish company big enough to fend off foreign suitors and
even make acquisitions abroad. It would also leave smaller regional power
companies, such as Spain's Gas Natural SDG SA or Energia de Portugal SA, prey to
a second wave of consolidation.
E.On's offer comes as energy companies are rushing to bulk up ahead of a full
liberalization of Europe's electricity sector next summer, when power companies
from any European Union country will be allowed to operate in any other member
state.
So far, cross-border deals have been limited, often by national governments.
High oil prices and energy shocks, such as a natural-gas dispute between Russia
and Ukraine last winter, have also stoked fears in Europe regarding the security
of energy supplies, leading to a rise in protectionism. Still, major European
power companies such as E.On and Italy's Enel SpA have built up sizable war
chests of cash and grown by expanding into Eastern Europe.
In recent years, Spanish utility companies were forced to watch this game
from the sidelines, as a succession of Spanish governments handcuffed their
efforts to consolidate, even as their European competitors bulked up.
Now, however, as the European Union has started knocking down obstacles to a
single market, Spanish companies are being drawn into the action. On Tuesday,
the EU executive body, the European Commission, struck down the Spanish
government's conditions designed to block E.On's bid. That ruling is expected to
hasten the creation of pan-European energy titans, following in the path of
industries such as banking, telecommunications and infrastructure management,
which have already seen a wave of consolidation across the Continent.
If completed, E.On's bid for Endesa would be Europe's biggest cross-border
electricity deal, and would create one of the Continent's largest power
companies.
Endesa will not be free to study E.On's improved offer until it is approved
by Spanish authorities, which could take as long as six weeks. Spain's Industry
Ministry must first rule on a legal complaint by Endesa against an earlier, ?1
billion hostile bid by Gas Natural SDG. Endesa's legal maneuvers have paralyzed
both takeover bids. Analysts say Gas Natural, a company roughly a third the size
of Endesa by market cap, will be hard-pressed to sweeten its cash-and-share
offer to compete with E.On's new bid of ?5 a share, 38% higher than its previous
offer.
E.On's improved bid for Endesa won't be trouble-free. It comes one day after
Spanish builder and energy company Acciona SA purchased a 10% stake in Endesa
for ?.4 billion at ?2 a share. E.On Chief Executive Wulf Bernotat said that he
sweetened the offer in reaction to the Acciona purchase, and that it was meant
"to send the right signal, so everybody concerned knows we mean business."
Mr. Bernotat said that Acciona officials indicated a desire to talk to the
German company, and that he was open to a discussion. He suggested E.On wouldn't
be opposed to Acciona remaining a shareholder in a combined company, but said it
is too early to say for sure what the shareholder structure would look like.
E.On's bid is contingent on securing at least one share more than 50% of Endesa.
E.On's bid is also conditioned on overturning bylaws that limit voting rights
in Endesa to 10%, regardless of the size of any holder's stake. Acciona could be
hoping to rally other big Endesa shareholders, and be in a position to block any
change in Endesa's bylaws at a shareholders' meeting that would be called if
E.On's bid goes ahead. That would defeat the E.On bid and allow Acciona to focus
on its stated goal of "leading" Endesa as part of its aggressive push into
electricity generation.
"Our plans haven't changed" despite the new E.On bid, said Acciona spokesman
Javier de Mendizabal. "We are still the leading player," he said.
Acciona's swoop on Endesa was followed quickly by another builder's move on
Iberdrola, which people close to the deal say could be a prelude to another
merger. Actividades de Construccion y Servicios SA, or ACS, said yesterday it
had paid ?.1 billion for a 6.3% stake in Iberdrola. The builder asked banks to
secure a 10% stake, at ?7 a share, on Tuesday afternoon, but ACS couldn't find
sellers for the full 10%. ACS already is the biggest shareholder in Fenosa, with
a 35% stake.
ACS said yesterday that it "had not taken any decision to promote a merger"
between the two companies. An Iberdrola spokesman said, "We have not had any
negotiations with Fenosa" regarding a merger. Fenosa declined to comment.
Endesa shares rose 7.7% to ?5, and Iberdrola shares soared 14% to ?8.16 in
Madrid yesterday.
Speculation about a deal involving Iberdrola spilled over into Portugal,
where the Spanish company has a 9.5% stake in state-controlled Energia de
Portugal. Shares in the utility rose 6.2% yesterday. Analysts said EDP would be
a likely takeover target by one of the big Spanish groups.
