Regulator Clears E.ON Bid for Endesa Electricity Group
July 28, 2006
Spanish regulators gave conditional approval Friday for Germany group E.ON to pursue its takeover bid for Spanish electricity group Endesa, insisting it must strip out a large portion of assets, particularly in nuclear power generation.
The regulator CNE hedged its approval for the controversial incursion by E.ON into Spain with 19 conditions, which media reports said meant the disposal of a third of Endesa's production capacity in Spain.
E.ON is offering 29.1 billion euros ($36.6 billion) in cash against a bid from Catalan gas group Gas Natural, favored by the Spanish government, which has offered 22.5 billion euros for Endesa, the country's leading electricity provider.
An approval with strings attached
The regulators' conditions state that E.ON must guarantee supplies of natural gas to the Spanish market, but they do not include a proposal that E.ON be obliged to sell its German subsidiary Ruhrgas within eight months.
Commentators had said that a requirement to dispose of Ruhrgas would have amounted to a veto of the bid.
Referring to "major risks for public safety represented by the nuclear activities," the regulator said that E.ON would have to sell Asco 1, a nuclear power station completely owned by Endesa, and give up Endesa's partial management responsibility for other nuclear power plants.
The conditions also call for E.ON to dispose of power stations using coal produced in Spain and to commit to Endesa's investment plan in Spain from 2002-2011 regarding infrastructure and gas transportation in particular.
Furthermore, the ruling requires the German group to sell assets owned by Endesa in the Balearic Islands, the Canary Islands and the Spanish enclaves of Ceuta and Melilla in North Africa.
E.ON had to "guarantee supplies of natural gas to the Spanish market, at least to the level of the annual quantity of gas foreseen in the supply plans for natural gas presented by Endesa to the CNE," according to the regulator.
EU gave E.ON the go-ahead
Madrid has been at loggerheads for months with the European Commission, which wants to discipline the socialist government for passing a law aimed at helping protect Endesa from a foreign takeover, as the company is in a strategic sector.
Spain adopted a law in February bolstering the power of its national energy regulator, the CNE, to review mergers affecting national strategic interests. It was passed days after E.ON announced its hostile bid.
Madrid would prefer an all-Spanish tie-up for Endesa and has actively backed the rival cash-and-shares bid for 22.5 billion euros launched in September 2005 by Gas Natural.
The EU commission launched infringement proceedings against Spain on May 3 on the grounds that its law on mergers review violated the EU's single-market rules.
EU competition regulators have already given E.ON's bid the green light.