Eon, Germany’s biggest power group, on Tuesday launched a €29bn cash offer for Spain’s Endesa, raising prospects of renewed consolidation in Europe’s energy sector.
If Eon succeeds it would be the word’s largest utility deal, valuing Endesa at €55bn, including debt and minority interests. It would create the world’s biggest utility with 50m customers across 30 countries in Europe and the Americas.
But the move, which trumps a rival bid from Gas Natural, threatened to disrupt Spanish efforts to create a national champion in the power sector and presented a challenge to Brussels just days after it announced an antitrust crackdown in the energy sector.
Wulf Bernotat, Eon chief executive, said he expected few anti-trust problems from the European Union as the companies’ markets did not overlap. He also hoped Spanish political opposition would not sink the deal.
Related stories
He said: “We believe that the Spanish government should let Endesa’s shareholders decide.” Madrid had been aiming to forge a gas and electricity giant capable of competing with others in Europe.
But Fernando Moraleda, a Spanish government spokesman, said Madrid was convinced that in energy it was ”in the general interest of the nation to have a Spanish company”.
Many analysts believe Brussels and Madrid will find few grounds to reject the deal as Eon has no established presence in Spain. “We think it can’t be blocked,” said Graham Weale, head of the European energy group at Global Insight, the consultancy.
Brussels scrutiny
A deal combining Eon and Endesa is certain to face careful scrutiny by antitrust regulators, many of whom are deeply concerned about the state of competition in Europe’s energy markets.
Eon is offering €27.50 per Endesa share, about 30 per cent above Tuesday’s value of Gas Natural’s share-heavy offer, announced last September. It will fund it through the more than €15bn of cash it has on its balance sheets plus new bank loans.
On Tuesday evening Endesa, Spain’s largest utility, said a preliminary assessment of the all-cash offer from Eon did not “adequately reflect the true value of Endesa”.
Bankers and industry executives said they did not expect a counterbid from Gas Natural, which could be hard-pressed to raise the additional funding. But they do believe other companies could act soon, among them Eon’s domestic rival RWE, which is expected to outline its acquisition strategy on Wednesday.
Simplicity vs complexity
Investors weighing up the relative merits of rival bids compare Eon’s offer with Gas Natural’s bid for Endesa
Many European utilities have bulging war-chests after benefiting from high energy prices.
The need to finance new investments means that further consolidation seems likely, bankers and industry executives said. European utilities are also looking to pick up new customers abroad as their home markets are deregulated.
Many analysts see between three and six main European energy utilities once the anticipated shake-out is complete. Earlier this week, Mr Bernotat said he expected to see just three dominant utilities across the continent, Eon among them.
On Tuesday Enel, the cash-rich Italian utility, said it was looking at several companies in Spain, France and eastern Europe, adding that Belgium’s Electrabel was among them.
Eon is advised by HSBC. Endesa’s advisers include JP Morgan, Deutsche Bank, Citigroup, Lehman Brothers, Credit Suisse, Merrill Lynch and BNP Paribas.
