THE LOST WAR OF THE SPANISH SOCIALIST COVERNMENT AGAINST ENDESA

Summary

Implications.

 1. Some EU member States must still learn to behave as independent arbitrators and not as one-sided fighting players against their own taxpayers.

 2. Some EU member States still seem unaware of the existence of powerful regulatory watchdogs above them.

 3. Some day, somewhere, “the wine and roses days” of total irresponsibility when ignoring the rule of law, may end up in unpleasant surprises.

Analysis

Background.

 

On September 5, 2005, GAS NATURAL, a company now (this current week) with a market value, of 11.986 million €, launched a hostile takeover on ENDESA, now valued at 29.221 million €.

ENDESA market value at the offer time was 20.200 million € and the takeover bid amounted to 22.500 million €, but to be satisfied just 1/3 in cash and the remaining 2/3 in GAS NATURAL stock.

Naturally, the offer was resisted by ENDESA that immediately started being publicly and openly  lynched by powerful sectors of the Administration reaching up to the Minister of Industry who, as a principal boss of the Catalonian Socialist Party, had to provide some public explanations in the press about a long standing -and never reclaimed-  debt of 14 million € of money provided to his regional political party by LA CAIXA (casually the single largest and dominant shareholder of GAS NATURAL).

Almost every administrative body (the Stock Market National Commission, the Energy National Commission, the Ministry of Industry, etc) scrambled to force ENDESA into the hands of GAS NATURAL while simultaneously trying to block any course of resistance legally available to the targeted victim. Only the Court for the Competition Defence by a voting of 6 against 3 of its nine members recommended the Government, on January 2, 2006, to reject the merger because of the serious anticompetitive consequences and the considerable consumer prejudice that would entail the intended operation.

In the meantime, 18 November 2005, the head of the Spanish Government had met at his official residence with the President of the European Commission, allegedly -as reported by some press- with the objective of fending off any potential attempt by the European Competition authorities to reclaim jurisdiction on the hostile takeover.

Later, on 5 February 2006, Mr. Rodriguez Zapatero and his Minister of Industry, Mr. Montilla, travelled to Barcelona to attend to a dinner hosted by La Caixa boss, Mr. Fornesa, at his own residence and attended by several other regional politicians and financiers, all of them strong supporters of the takeover designed by La Caixa.  Coincidentally, less than 48 hours before the dinner, the Council of Ministers, deciding against the strong recommendation of the Court for the Competition Defence and approved La Caixa sponsored operation against ENDESA.

So far, and since the beginning of its ordeal, ENDESA was forced to invest a substantial, but still  undisclosed amount of money, and to launch about 30 different litigations in various jurisdictions, to stop so many and powerful attackers on their tracks.

Also, unfortunately for the raiders, about two weeks later, on 21 February, 2006, the German multinational E.On launched a cash offer for the 100% stock capital of ENDESA, amounting to almost 30.000 million €.

Just 3 days later, on 24 February 2006, acting upon a proposal from the Energy Minister, Mr. Montilla, the Council of Ministers, approved a Royal Law-Decree (a panic type of push-the-red-button procedure generally reserved for emergency situations) enlarging the Energy National Commission powers to decide on mergers coming beyond the Spanish borders and affecting to Spanish energy operators, with the authority to reject the intended operation or impose mandatory conditions to the on the offeror.

Some journalists, in general negatively commenting on this unexpected and single-handed governmental manoeuvring, disclosed also that when comparing the Law project text, as submitted and approved at the Council’s meeting, with the text of the Law as subsequently published on the State Official Bulleting, the latter presented significant changes intended to reinforce the scope and effects of the rule.

Fortunately for ENDESA, the Justice still works, and through two decisions, the first dated 21 March 2006, by a Mercantile Court ordering the suspension of further proceedings in the GAS NATURAL hostile takeover and, on the following 21 of April, by the Supreme Court of Justice, suspending the 3rd of February Council of Minister’s resolution authorizing the takeover of ENDESA by GAS NATURAl.

However the strongest couple of hits to ENDESA attackers came from Brussels: the first on 25 April 2006, in the form of an unconditioned approval by the European Commission of the E.On offer to ENDESA, the second on 3 May 2006, by an EU decision opening proceedings against Spain because of the Royal Law-Decree so hastily approved and irregularly enacted and aimed de facto to vest a veto power on the National Energy Commission regarding the acquisition of Spanish energy operators by EU companies.

The two most recent and significant developments are: (1) the past 27 of July’s resolution by the National Energy Commission, using, as expected, the prerogatives so suspiciously conferred to it by the EU denounced Spanish Royal Law-Decree of 3 February 2006, in deciding to approve first the E.On intended merger with ENDESA but immediately attaching to it 19 illegal conditions having the net effect of diminishing the energy generating capability an after-merged ENDESA in Spain by a 30% of the present output, and, (2) the past 26 of August preliminary decision by the EU to declare illegal and contrary to the Merger Regulation and to the Treaty of Rome the 19 conditions outlined by the Spanish National Energy Commission. Now Spain has to reply to the EU statement, initially by 4 of September and, subsequently, accepting a Spanish request, by 13 of September 2006.

On the background however the Spanish fandango on the political levels have been -and still is-  going on, probably not anymore to favour  the already dead and practically entombed GAS NATURAL hostile takeover, but, at least to save some of the face so shamelessly lost by a considerable number of politicians, together with a bunch of supposedly public-servants pushed all of them by some not very ethical market-raiders, now populating some parts of the Spanish coastline and of its financial centers.

Recently, prominent Spanish and German politicians have publicly expressed their expectations of successfully negotiating most –if not all- of the 19 conditions attached by the now all-powerful Spanish National Energy Commission on the unconditionally and long ago EU approved takeover of ENDESA by E.On.

The only dissenter regarding such an optimistic outlook is the already lame duck Spanish Minister of Industry, Sr. Montilla, who suddenly transfigured into a fine jurist and a fervent defender of the rule-of-law, has tersely reminded his President and his successor in the cabinet portfolio, that none of the 19 conditions imposed by the National Energy Commission are negotiable because “that would be against the law”. Regretfully he sagely forgot to clarify such a tersely expelled legal pearl, since nobody seems to be ready to bet one Euro on whether he meant that the scope of each of the 19 conditions cannot be reduced or that none of the 19 conditions can now be scratched from the stone where he carved them.

Some concluding remarks 

The only clear –and probably definitive- voice now heard about the whole sad mess is the one coming from the Press Office of the EU Competition Commissioner, stating (a) They are not maintaining any “negotiation” with the Madrid Executive, and (b) The obligation of the European Commission is to monitor the compliance of the European Law and, in that regard, they have already expressed that the majority of measures attached in this case by the Spanish energy regulator infringes the EU laws.

It looks like the EU regulators are starting to feel fed up with the almost constant feuding with a certain number of member States not ready to abide by the EU laws enacted by them to regulate market access and conditions within the common EU space. Such is the impression flowing out from the Italian side, with Abertis/Autostrade deal, from the French side with the GDF/Suez deal and now from Spanish side with the ENDESA/E.On potential deal.

As a final note just to highlight the ludicrousness of some of the reasons alleged by the Spanish Scialist government in conditioning the combination of a German company with an Spanish one, under the pretext of considering the energy supply to Ceuta, Melilla and Balearic Islands as a question of “national interest” what, then, could be said about conferring the management of the three mayor international airports around London to an Spanish company?

There are arguments that any semi rational animal would rather prefer to let them sleep.

Regarding the ENDESA fiasco such would be the most advisable course of action.