Endgame at Endesa

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Introducing a pivotal character in a play just before the final curtain galvanises the plot. This has happened in the lengthy drama of Endesa’s fate. Enel, the Italian electricity group, has bought a stake in the Spanish company that has spent almost 18 months as a takeover target. The move has created a perception of political manoeuvring behind the scenes. It is up to Enel to dispel this unwelcome impression.

Gas Natural, a Spanish gas utility, made an approach to Endesa back in September 2005. In February last year Eon, the German energy giant, made a cash bid of €38.75 a share for the Spanish electricity group, provided that the 10 per cent cap on voting rights at Endesa was lifted. Gas Natural has now bowed out, leaving Eon with the support of the Endesa board, the continued hostility of the Spanish government, and no certainty that the voting restriction will be removed. On Tuesday Enel, in which the Italian government controls directly and indirectly just over 30 per cent, bought a 9.99 per cent stake in Endesa for €39 a share.

Enel is fully entitled to buy a shareholding that it believes will strengthen its position in the European electricity market – even at so high a price. It faces restrictions in its domestic market, so there is sense in expanding abroad. And certainly its international ambitions need a new direction after its unsuccessful targeting of Suez, the French utility. Yet there are also elements that seem to point to some political involvement. The Italian government was told about Enel’s move before it was announced, and the stakebuilding came just a few days after a meeting in Ibiza between prime ministers José Luis Rodríguez Zapatero of Spain and Romani Prodi of Italy.

It is important to counter the impression that the national leaders entered the takeover battle for Endesa. Investors would be naive not to recognise that both Spanish and Italian corporate cultures can sometimes be careless of minority shareholder rights. But it would be damaging for investment in both countries if institutional shareholders believed that government influence would prevail even in quoted companies that should be run for the interests of shareholders in general.

There are two steps Enel should take to clear the air. The first is to give a fuller explanation of the business case, by spelling out the joint industrial projects that its stake in Endesa should facilitate. The second is to say that at the shareholder meeting later this month it will support lifting the voting restrictions. This would not commit it to accepting Eon’s offer, since that is a separate question. By enabling investors then to consider the merits of the German bid on a “one share, one vote” basis, it would make it clear that the stakebuilding was not a cynical exercise just to block the German group by causing its bid to fall at the procedural obstacle. Assuming, of course, that this is the case.

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