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E.ON's Endesa offer may succeed after raising bid

E.ON AG, Germany's biggest utility, may succeed in buying Endesa SA after raising its unsolicited bid for the Spanish electricity company by 12% to €41 bln  ($53.1 bln).

The Dusseldorf-based power and gas supplier increased its offer to €38.75 a share in cash, within 0.7% of Endesa's closing price yesterday of €39.04. Shares of the Madrid-based utility have traded above the takeover value for more than two months. „The price is good enough for E.ON to win,” said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion, which manages the equivalent of $9.4 billion and owns Endesa shares. CEO Wulf Bernotat wants to buy Europe's third-largest power company to gain 22 million customers and hundreds of power plants from Poland to Chile. He sweetened the bid for a second time to help win over Manuel Pizarro, Endesa's chairman, and Acciona SA, the largest shareholder. The latest bid is 41% higher than the original offer in February 2006. „This offer is both compelling and unique,” Bernotat said at a press conference in Madrid today. He said E.ON isn't allowed under Spanish law to raise its bid again. „The price we are now offering is the final price.” Bernotat repeated his demand that Endesa remove the limits on investor voting rights. The Spanish power producer currently limits stockholders to 10% of voting rights, regardless of how big a stake they own.

Endesa's board plans to discuss February 6 whether to endorse the bid it had previously rejected for being too low. The board must also schedule a shareholders meeting to remove the anti-takeover measures. Eliminating the voting limit needs backing of investors holding more than 50% of the stock. The German company expects the bylaws to be changed in a shareholders' meeting in March, Bernotat said. „The removal of the voting limits is clearly an important part of what we want the shareholders to do,” he said. Bernotat now is hoping to convince Acciona, with a 21% stake in Endesa, to sell or at least clear the way for E.ON to win the 16-month takeover battle. In recent months Acciona amassed its stake in Endesa and said it may raise the holding to as much as 24.99% as it tries to thwart E.ON's takeover bid.

Acciona, a Spanish construction company and investor in wind energy, will sell its stake in Endesa if the German utility gets majority control in the tender period, an Acciona spokeswoman said after the announcement yesterday. She was repeating the company's earlier stance. „E.ON had no other choice but to raise the bid to guarantee the transaction's success,” said Pedro Real de Asua, who helps manage the equivalent of $8.4 billion for Barclays Fondos in Madrid, including Endesa shares, before the announcement. „The company has to meet market expectations.” E.ON first increased its offer on September 26, responding to Acciona's initial purchase of Endesa shares. E.ON has since sued the Spanish builder, saying the company made false filings to the US Securities and Exchange Commission. Bernotat wants to enter territories with faster-growing energy consumption than his home market. German power use in the first three quarters of 2006 increased 0.6% from a year earlier, according to power industry organization VDEW. In Spain, the gain was 3.3%.

Bernotat said today he hasn't spoken to Acciona or Caja Madrid, with a 10% stake in Endesa, since raising the bid. Endesa's shares were yesterday suspended from trading until after 8:30 a.m. Madrid time on February 5. The CEO said E.ON will consider selling new shares or some of the combined company's assets to finance the bid, depending on how many investors accept the offer. He declined to give more details. The combined company will generate €600 million a year in cost savings from 2010, he said. The transaction will add to profit from the first year and returns will be above the cost of capital after three years. Bernotat pledged to keep Endesa's investment plans to install 7,100 megawatts-worth of new power plants by 2009 to take the company's total to 56,000 megawatts. Endesa CEO Rafael Miranda last month said he planned to gain about 4 million new clients to reach 26 million by then. Endesa's dividend policy will be changed to conform to that of the E.ON group, Bernotat said, without being more specific. Endesa's management promised last month to pay shareholders €9.9 billion in dividends in the five years through 2009. It has already paid €3 billion of that. (Bloomberg)