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Last updated: September 27, 2006 12:41 am

Endesa/Acciona

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While many hedge funds struggle to make a return of a couple of percentage points a month, Acciona, a Spanish construction group, has set a new benchmark. Its acquisition of a 10 per cent stake in Endesa, a utility, appears to have returned 9.4 per cent in the space of 24 hours.

Endesa was already the subject of a tortuous takeover battle between Spain’s Gas Natural and Germany’s Eon. Until Monday, it looked like Eon was winning. But due to the peculiarities of Endesa’s voting maths – capping each shareholder’s rights at 10 per cent – Acciona’s raid left it potentially holding the balance of power, even if Eon acquired 50 per cent in a tender offer.

Now Eon has raised its offer to €35 per share, €3 above the already punchy price Acciona paid to muscle its way in. The financial benefit of releveraging its balance sheet through an acquisition gave Eon room, theoretically, to pay more. But tax-shield benefits cannot paper over the fact that Eon has been forced to bid over the odds.

Acciona is the latest Spanish builder to make a power play in the domestic utility sector. Rival ACS has built a stake in Union Fenosa over the past 12 months and is rumoured to be stalking Iberdrola.

Like most of its peers, Acciona naturally wants to diversify away from Spain’s bubbly construction market. Such a proliferation of conglomerates and cross shareholdings, however, is unwelcome and rests on exuberant valuations. On paper, ACS’s reported 35 per cent stake in Fenosa has returned an estimated 27 per cent to date. But that is mainly because Fenosa now trades well above most analysts’ price targets, largely on the back of frothy commodity prices and hopes of more bid activity. Acciona may have made a quick killing this time, but Spain SA has little reason to cheer.

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