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EU launches court action against Spain over Endesa takeover battle

European Union regulators on Wednesday said they would take the Spanish government to court for its failure to drop the conditions it has imposed on a multi-billion euro takeover bid by German energy giant E.ON AG for Spain's top electricity company Endesa SA.

The European Commission, the EU's top merger watchdog, said that since Madrid 'has still not withdrawn the illegal measures' imposed on the E.ON AG bid, it would refer the case to the EU's highest court. The move is the latest twist in a test case for European cross- border deals in the energy sector, underlining the EU executive's determination to crack down on what it sees as Madrid's protectionists behavior. The commission last year ruled that Spain had acted unlawfully in demanding that Endesa SA refrains from selling any assets from the Canaries and the Balearic Islands, keeps the Endesa brand, uses domestically-produced coal and does not divert gas to markets outside Spain. Madrid has argued that the conditions imposed on E.ON's bid for Endesa were necessary to secure the national energy supply and did not create a problem because E.ON had accepted them.

The commission's decision to take the matter to court comes two days after E.ON scored a key victory in its long-running battle for control of Endesa when the Spanish power company's board backed E.ON's bid of €42.4 billion ($56.5 billion) to take over the Madrid-based group. Endesa's board on Monday decided to endorse the E.ON offer after signs emerged of a new bidding war for Endesa. Just hours after E.ON raised its takeover bid for Endesa for a third time Monday to €40 a share, Italian utility group Enel SpA confirmed it was pressing on with Spanish builder Acciona SA to launch a joint counterbid for Endesa.

An announcement by E.ON that it was increasing its offer for Endesa came in the wake of a plan outlined last week by Enel and Acciona to launch a joint takeover of the Spanish energy group. While E.ON's latest bid values Endesa at €42.4 billion, the Enel-Acciona offer would bring Endesa's value to €43.4 billion. A tie-up between Endesa and E.ON would create a new force in the global energy market with more than 22 million customers and a business empire stretching from Europe to the United States and South America. E.ON, however, needs at least 50% for its bid to succeed.

 
German business media reported this week that E.ON and Enel last weekend held talks over the Endesa case. Analysts believe that E.ON faces an uphill battle to secure control of Endesa as Enel and Acciona together already hold about a 46% stake in Endesa. The German energy giant's problems in Spain began last summer when Spanish authorities imposed tough conditions on its bid for Endesa, although EU regulators had already approved the merger unconditionally. The commission ruled in September that Spain violated EU regulations and told the government to withdraw all conditions. This decision was a setback for the Spanish government which had hoped to create a national champion in the energy sector to protect the industry from foreign takeover bids.

Spain had originally backed a merger between Endesa and the country's top gas supplier Gas Natural, which offered €22.5 billion for the company. But the commission approved E.ON's takeover of Endesa in April, arguing that the merger would not dominate European electricity markets. The EU executive is currently fighting to combat national energy cartels and halt creeping energy protectionism across the EU. A number of EU members have tried to block takeovers of key companies in recent months. (monstersandcritics.com)