New Spanish utility giant
The $26.5 billion hostile acquisition of Spanish utility company Endesa by Spanish firm Gas Natural has passed some recent hurdles and looks to be on track, thanks to support for the Spanish government. The combined company would be the #3 energy company in the world and is part of a Europe-wide and worldwide consolidation. Spain's growth is among the most robust in Europe and its energy needs are growing as well.
Gas Natural is the #1 supplier of natural gas in Spain. It also has major electrical generation interests. In addition, it has energy operations in Italy, Latin America (Mexico, Colombia, Puerto Rico, and Argentina). Nearly a third of the company is owned by Spanish largest oil company Pepsol YPF; another third is owned by Spanish bank La Caixa.
Endesa is primarily an electrical utility (#1 in Spain), but also delivers natural gas in some areas of Spain. It recently sold off a majority stake in Auna, Spain's #2 phone company, to France Telecom. It has operations in other European and Latin American countries as well. Endesa is a much larger company than Gas Natural, with revenues three times larger than its intended acquirer.
In Spain, there is much concern about rising rates. The move would create an energy duopoly in Spain, along with Iberdrola SA, and has therefore received a thumbs-down from the Spanish competition board. And parallel deals have been struck down in Europe recently, as the Wall Street Journal (Spain Looks Set to Clear Gas Natural-Endesa Deal", 2/2/06) reports:
A similar takeover bid in Portugal was struck down by the EU last year on the grounds that it would inhibit competition, and German competition authorities initially vetoed another gas-electricity tie-up, which eventually went ahead.
According to the announced ruling Gas Natural will have to sell off power-generating assets, possibly to Iberdrola to satisfy competition regulators.
The force working to promote the acquisition include a move by the European Union to encourage cross-border mergers. From the same WSJ article:
The European Union wants to gradually weave together the region's scattered electricity "islands," such as the Iberian Peninsula, Italy, Scandinavia and the U.K. -- places with few electricity-grid links to their neighbors.
Meanwhile, this deal, like most acquisitions, is contagious. Spain's #3 energy company, Union Fenosa, which has operations in Spain, Egypt, and South America, is also a target for acquisition. Among the suitors is Spanish construction firm Actividades de Construccion y Servicios SA, or ACS, which recently bought 22% of the company and plans to increase its stake. The whole company may be worth over $12 billion. Another possible deal may be a merger with Energias de Portugal SA, a Portuguese company of roughly the same size. One of Union Fenosa's key service areas is in the province of Galicia, which borders on Portugal.
Traditional barriers against utility mergers are falling in Europe and the US (such as Duke Energy-Cinergy and FPL-Constellation). We'll see bigger companies with more bargaining power with resource suppliers and with more independence from vendors. Antitrust regulation is getting weaker and there is lots of investment capital sitting around waiting for takeover attempts, even hostile ones like Gas Natural's for Endesa.
