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Endesa takeover bid: good deal for shareholders

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On 1 June, Enel and Acciona are due to discuss their Endesa bid with the European Commission. The latter then has 25 days to resolve the situation

The so-called ‘battle for Endesa’, Spain’s biggest electricity company, is drawing near to a close. Spanish, Italian and German companies have fought tooth and nail to cut themselves a slice of this impressive cake. We will probably know what will come of the joint purchase offer for Endesa from Spanish Acciona and Italian Enel before the end of June. It is predicted that the European Commission will not oppose this transaction providing it doesn’t put European consumers’ energy supply at risk.

On 26 June, the purchase deal that has evoked such huge media interest over the last year and a half will come to an end. Last minute surprises will have set the tone of this electricity drama that will have lasted 18 months.

Employers: ‘huge snake in the grass’

The employers moves with regards to Endesa have born a resemblance to a game of chess. Six months after Gas Natural, the leading Spanish gas company launched the first (hostile) takeover bid for Endesa in September 2005, the powerful German company E.ON then joined the game with similar interests.

Manuel Pizarro, Endesa chairman, opposed Gas Natural’s purchase of his company from the outset by repeatedly initiating legal procedures. However, he never blocked the competitive offer from E.ON. As a result many think that E.ON is a ‘Trojan horse’ from Endesa in order to resist the Gas Natural takeover bid. After a harsh battle with Spanish, EC and American jurisdictions (Endesa is quoted on the American stock market), and in Brussels in the face of E.ON bids, Gas Natural gave up the fight on 2 February. Just when everything seemed settled, there was the surprise offer from Acciona and Enel. This angered Pizarro once more and ended up ousting E.ON from the battle.

Yet the story has a happy ending. At the beginning of the deal, Endesa shares were quoted at 19 Euros. Today, 18 months later, they have been revalued at 41 Euros. A golden goose for shareholders. Moreover, the three companies (Acciona, Enel and E.ON) have come to an agreement and it seems that none of them will come out of it worse off. Instead of taking Endesa assets throughout the rest of Europe, E.ON has revoked the legal proceedings undertaken against Acciona and Enel, thus leaving them free reign for their offer.

Politicians every which way you look

The Endesa purchasing process has not been one of the most straightforward. After the E.ON takeover bid, the Spanish government modified national regulations so that the National Energy Committee could put obstacles in the way of this purchase. This standard is now in the hands of EU Court of Justice judges, as the Commission considers that it opposes free movement of capitals, one of the EU’s fundamental liberties. The Spanish government’s protectionist actions in favour of Gas Natural’s takeover bid could be justified, not by the protection of the Spanish consumer so as to guarantee energy supply as it would have liked to make out, but by more complex economic interests.

The future of Endesa was finally decided in the course of meetings at the highest level, instead of granting this decisive power to its shareholders. The countries’ leaders, on whom the companies concerned depend (Merkel, Zapatero and Prodi) don’t seem to believe in the rules of free trading governed by EU treaties, nor in Adam Smith’s theory which asserts that markets should self regulate. Telefónica España is also participating with Telecom Italia, now that the Spanish multinational company has just sold Endemol Productions to Silvio Berlusconi's hold. On 23 May Fininvest also declared its unwillingness to invest in Telecom Italia.

Quid pro quo behaviour continues to apply in a 27 strong EU. Acciona and Enel launched a third takeover bid for Endesa (after those of Gas Natural and E.ON), scarcely a few weeks after a meeting was held between Zapatero and Prodi. It demolished E.ON’s plans only three days before its purchase bid came into effect. This ‘favouritism’ between Italy and Spain could be a tit for tat which might clear the way for the merger between Abertis (Spanish motorway management company) and Autostrade, its Italian equivalent.

Who’s thinking of European consumers?

To what extent are these kinds of transaction beneficial to consumers? Great dependency on external resources for energy, mainly Russian gas and oil, highlights Europe’s low capacity for supplying itself with energy. Purchases of this kind are not the cure-all of the problem. However, they can be advantageous for companies’ negotiators in order to obtain better gas supplies or expand their energy production capacity by way of investments. The debt generated from the purchase of a company the size of Endesa may, however, hinder investment in the short term.

Photo homepage: electric tower (Von Kinder/ Flickr)

Translated from OPA a Endesa: negocio redondo para sus accionistas