Governments remain hostile to foreign energy mergers suitors

Protectionism is the main hindrance to consolidation across borders. Lorraine Mallinder reports.

At the beginning of last year, the energy market appeared to be on the verge of important cross-border consolidation. In February 2006, E.ON, the German utility group, launched a striking €29.1 billion bid for Endesa, a Spanish utility, which would have created the largest energy company in the world. Soon afterwards, the Italian firm Enel hinted at a bid for Suez, a French utility.

But neither the Spanish or French government was prepared to allow a free-for-all.

The Spanish authorities’ response was to hand decision-making powers over foreign takeovers to the national regulator, loyal to the government. The French administration pre-empted Enel’s expected bid with an arranged marriage between national champions Suez and Gaz de France, a merger which still hangs in the balance after the recent change in government.

A frustrated Enel then gatecrashed E.ON’s bid, taking a 25% stake in Endesa earlier this year. Enel was able to forge a bid-blocking pact with Spanish construction company Acciona, which also holds a quarter stake in Endesa. Enel and Acciona are currently organising a joint bid for Endesa.

Enel’s entry into the Spanish market put it in conflict with E.ON. Since the Enel bid came after a meeting between José Luis Rodríguez Zapatero, the Spanish prime minister, and his Italian counterpart Romano Prodi, it looked suspiciously like the forging of a Medi-terranean energy alliance. Italy’s collusion with Spain appeared to contradict its condemnation of the French government for trying to protect Suez from Enel.

E.ON which had spent a year trying to overcome the resistance of the Spanish government (the latter supported a lower offer from the Barcelona-based Gas Natural), ended up withdrawing its bid in return for the potential acquisition of a portfolio of Endesa assets across Europe and the acquisition of Enel’s Spanish unit, Viesgo.

Matthias Heck, an analyst at investment bank Sal. Oppenheim in Frankfurt, thinks that E.ON made a relatively lucky escape from its takeover attempt. "We see E.ON as a lucky loser, a loser in that they only get assets of €10bn, but a winner in that they get them for a cheap price," he says.

The big test for the markets now is whether the German government, which strongly supported E.ON’s bid for Endesa, will change its pro-consolidation tune if, as expected, national conglomerate RWE is targeted by foreign bidders. According to Heck, the German government could change tack and become more protectionist if it comes to believe its open-minded strategy has failed.

Protectionism is the main hindrance to consolidation across borders. Lorraine Mallinder reports.