The storm is brewing over Spanish legislation that is seen as giving a helping hand to the Spanish company Gas Natural to the disadvantage of Germany's energy giant E.on in its bids for power company Endesa.
The "Endesa-Saga" provides not only an interesting exposé of some idiosyncrasies of European merger control, but raises some fundamental questions of (i) whether governments should be allowed to create national champions and (ii) to what extent they should be allowed to protect their national companies against foreign bids. The European Commission is taking up the case for cross-border acquisitions and against protectionism.
By way of background, towards the end of last year, Spanish company Gas Natural launched a (hostile) bid for Endesa. That transaction was reviewable by the Spanish authorities since both parties achieved more than two-thirds of their turnover in Spain. Endesa tried, but ultimately failed, to persuade the European Commission that it and not the Spanish authorities, had jurisdiction. Even though the Commission declined jurisdiction, it publicly called for an amendment to the merger rules that would see such deals being reviewed in Brussels in the future.
The Spanish government seemed to welcome the creation of a Spanish national champion. Even though the Spanish competition authorities recommended that the deal be blocked, the minister ultimately cleared the transaction, albeit subject to remedies.
At the end of February, E.on entered the fray with a EUR 29bn cash offer that threatened to disrupt the efforts to create a Spanish national power giant. The E.on bid is currently being reviewed by the Commission.
Following the E.on bid, the Spanish government rushed through new legislation which gives Spain's national energy commission powers to veto or impose conditions on takeovers of domestic utilities. This has been viewed by many as being a direct response to Eon's bid.
This 'reaction' has provoked the wrath of the European Commission which is asking hard questions about this new law, as it has already done in a similar case involving Poland. (That case is currently winding its way through the European Court). So far, Spain is unrepentant but the pressure is mounting to leave the decision to shareholders, not to politicians. In an interesting twist, Endesa gained some time by obtaining an injunction against Gas Natural's offer although it is unlikely to be upheld in the long term. The remaining question is whether in the end protectionism or the free market will prevail.