Endesa break-up is not an original idea

The break-up of Endesa is not an original idea.

Gas Natural, the Catalan utility, proposed the sale of up to $11.8bn worth of assets to overcome competition concerns around its €22bn ($29.3bn) offer for Spain's biggest electricity provider in September 2005.

However, when Wulf Bernotat and Fulvio Conti, the chief executives of Eon and Enel respectively, sat down at the Four Seasons hotel in Geneva 10 days ago to discuss a carve-up of Endesa, the motives were somewhat different.

Antitrust obstacles were no longer the main concern, but rather the swift resolution of a shareholder impasse that threatened to drag out one of Europe's most complex takeover battles for at least another six months.

Gas Natural had long fallen by the wayside. Enel and Acciona, the Spanish construction group, had just announced plans for a joint €43.3bn offer for Endesa, against Eon's €40bn tender offer.

With a joint 46 per cent of the company, and the support of the Spanish government and its 3 per cent stake, the Italo-Spanish partnership was certain to thwart Eon's quest for 50 per cent of the company.

However, with a six-month moratorium on any formal bid by the duo, and the threat of legal action by Eon, Enel and Acciona, too, faced an uncertain future.

With some coaxing from the authorities, Mr Bernotat and Mr Conti sat down to work out a truce.

According to people familiar with the matter, the initial discussions were inconclusive.

However, any lingering doubts about the need for a deal were rapidly dispelled when, at 8pm the following day, Caja Madrid, the Spanish savings bank, threw its weight behind the Eon bid.

By ceding its 10 per cent stake to the German group, while retaining its voting rights, the bank offered Eon a fighting chance of a respectable 25 per cent position.

It also created a voting block that may have rendered the Enel-led partnership's equity holding politically toothless.

The counter-attack had been promoted by Endesa's board, which appeared prepared to use company by-laws on voting restrictions and conflicting interests to keep Enel and Acciona off the board and out of management indefinitely.

Eon was now in a good position to negotiate, and talks with the Enel-Acciona bloc began in earnest in the second part of last week.

On Monday, after less than a week of discussions, they signed the agreement in the offices of Spanish legal firm Perez Llorca in central Madrid.

"The three parties knew Endesa inside out, having studied it for ages," said a person familiar with the process.

"There was therefore very little dispute about who would get what parts," he added.

Essentially, Eon agreed to renounce the shares tendered to it under its current offer in return for about €10bn worth of Endesa's mainly non-Iberian European assets.

Mr Conti on Monday night described the accord as "a good solution within the Spanish environment, and for Endesa itself".

"Endesa remains the main and most formidable player in the energy sector in Spain," he told the Financial Times.

"At the same time, by giving Eon a small list of domestic assets, this creates even more competition in the Spanish market."

The sale of Spain's Italian business is particularly attractive to both sides, said Mr Conti.

By shedding the asset, Enel will avoid competition issues in its main market, while Eon will get the foothold in Italy it has always wanted.
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