WSJ.com - Endesa Rejects Gas Natural's Bid
WSJ.com - Endesa Rejects Gas Natural's Bid
Big Takeover Battle Is Likely
In Spain as Power Industry
Consolidates Rapidly in EU
By KEITH JOHNSON in Madrid and JASON SINGER in London
Staff Reporters of THE WALL STREET JOURNAL
September 7, 2005; Page A3
Spanish power utility Endesa SA rejected the unsolicited bid of €22.55 billion ($28.27 billion) from Gas Natural SDG SA, a smaller natural-gas company, setting the stage for a hard-fought takeover battle as the European energy industry undergoes a bout of frantic consolidation.
After huddling for most of the day in Madrid, Endesa's board advised its shareholders against accepting the Gas Natural offer, calling it "hostile" and saying the price "does not reflect the real value of the company."
The Endesa board appointed three investment banks -- J.P. Morgan Chase & Co., Deutsche Bank AG and Citigroup Inc. -- to help it craft its takeover defense, according to people familiar with the matter.
"It was in the script," Gas Natural Chief Executive Rafael Villaseca said in an interview, shrugging off Endesa's negative response to the bid. "In any event, it will be up to the shareholders to decide, and business logic will end up prevailing."
Based on Monday's prices, Gas Natural's cash-and-stock offer values Endesa at €21.30 ($26.70) a share. Endesa's American depositary receipts were up $2.46, or 11%, at $25.75 in 4 p.m. New York Stock Exchange composite trading. In Madrid, Gas Natural shares fell 2.2% to close at €24.24.
A flurry of deal making is taking place in the European energy sector. Last month, France's Suez SA moved to acquire the 49.9% of Belgian power utility Electrabel SA it doesn't own. On Monday, Germany's E.On AG said it was considering a takeover bid for ScottishPower PLC, the United Kingdom's fifth-largest power producer. And France is preparing to sell shares in its former power monopoly, Electricité de France SA, to public investors this fall, following the initial public offering of natural-gas provider Gaz de France SA this summer. (See related article.)
The intense activity is being spurred by both the European Union-mandated liberalization of the continent's energy markets and volatile commodity prices, industry executives and analysts said.
Until recently, most European energy utilities enjoyed dominant positions in their home countries and captive clients. Sheltered from market vagaries, they could pass on higher production prices to their consumers.
But the EU has begun opening its power and gas markets to competition in staggered phases, first to corporate and then to residential clients. EU members must fully open their power markets to competition by July 2007 and their natural-gas markets by the end of 2008. As these deadlines approach, European energy utilities are seeking more size, a pan-European presence and a more balanced energy-generation portfolio.
In the past year, they also have had to contend with a volatile market for oil and natural gas, which have reached record prices, driving up their costs of producing electricity.
The combination of these factors has pushed some companies to seek vertical integration by controlling their own supply of raw materials -- a main rationale behind Gas Natural's bid. Gas Natural hopes to use its plentiful supply of natural gas to power Endesa's gas-fired turbines, which produce cheaper and environmentally cleaner electricity than older coal-fired plants.
"Some utilities that have been squeezed by commodity prices on the one hand and by consumers and regulators at the other end are beginning to think they should move upstream, to capture a greater share of the energy value-chain margin," said Vittorio Perona, head of the power and natural-resources corporate-finance division at Dresdner Kleinwort Wasserstein.
Gas Natural, based in Barcelona, Spain, outlined details of its offer yesterday, arguing that it would spur competition to the benefit of consumers in Spain, while creating a strong "national champion" able to compete with other European energy titans when the continent's power markets are fully liberalized.
"The only possible solution" to growing energy demand in Europe is "more gas-fired plants," Mr. Villaseca said. "And that means utilities have to have a flexible and available supply of natural gas."
Rival Spanish utility Union Fenosa SA is following a similar strategy by teaming up with Italian oil-and-gas titan ENI SpA to build liquefication and regassification plants that will bring natural gas from Egypt to Spain by ship to power its turbines at a competitive price. In Germany, E.On relies on its E.On Ruhrgas unit to supply it with natural gas to power its turbines.
In the near term, the strategy carries financial risks. Credit concern Standard & Poor's Ratings Group placed Gas Natural and Endesa on review with a negative outlook yesterday, citing the increased debt load that the combined company would carry if the deal were successful. Gas Natural also must convince Spanish regulators that a merged company wouldn't have too dominant a position in Spain.
Gas Natural said it expects the deal to pass muster thanks to a pre-agreed selloff of some of Endesa's generation assets to a Spanish rival, Iberdrola, under a deal reached with Iberdrola.
The takeover offer sparked a rally in the shares of European utilities yesterday. The DJ Stoxx utilities index rose 1.5%.
Endesa's advisers are trying to determine whether other utilities could emerge as counterbidders. Any foreign bidder, though, risks entering a highly political dogfight.
Big Takeover Battle Is Likely
In Spain as Power Industry
Consolidates Rapidly in EU
By KEITH JOHNSON in Madrid and JASON SINGER in London
Staff Reporters of THE WALL STREET JOURNAL
September 7, 2005; Page A3
Spanish power utility Endesa SA rejected the unsolicited bid of €22.55 billion ($28.27 billion) from Gas Natural SDG SA, a smaller natural-gas company, setting the stage for a hard-fought takeover battle as the European energy industry undergoes a bout of frantic consolidation.
After huddling for most of the day in Madrid, Endesa's board advised its shareholders against accepting the Gas Natural offer, calling it "hostile" and saying the price "does not reflect the real value of the company."
The Endesa board appointed three investment banks -- J.P. Morgan Chase & Co., Deutsche Bank AG and Citigroup Inc. -- to help it craft its takeover defense, according to people familiar with the matter.
"It was in the script," Gas Natural Chief Executive Rafael Villaseca said in an interview, shrugging off Endesa's negative response to the bid. "In any event, it will be up to the shareholders to decide, and business logic will end up prevailing."
Based on Monday's prices, Gas Natural's cash-and-stock offer values Endesa at €21.30 ($26.70) a share. Endesa's American depositary receipts were up $2.46, or 11%, at $25.75 in 4 p.m. New York Stock Exchange composite trading. In Madrid, Gas Natural shares fell 2.2% to close at €24.24.
A flurry of deal making is taking place in the European energy sector. Last month, France's Suez SA moved to acquire the 49.9% of Belgian power utility Electrabel SA it doesn't own. On Monday, Germany's E.On AG said it was considering a takeover bid for ScottishPower PLC, the United Kingdom's fifth-largest power producer. And France is preparing to sell shares in its former power monopoly, Electricité de France SA, to public investors this fall, following the initial public offering of natural-gas provider Gaz de France SA this summer. (See related article.)
The intense activity is being spurred by both the European Union-mandated liberalization of the continent's energy markets and volatile commodity prices, industry executives and analysts said.
Until recently, most European energy utilities enjoyed dominant positions in their home countries and captive clients. Sheltered from market vagaries, they could pass on higher production prices to their consumers.
But the EU has begun opening its power and gas markets to competition in staggered phases, first to corporate and then to residential clients. EU members must fully open their power markets to competition by July 2007 and their natural-gas markets by the end of 2008. As these deadlines approach, European energy utilities are seeking more size, a pan-European presence and a more balanced energy-generation portfolio.
In the past year, they also have had to contend with a volatile market for oil and natural gas, which have reached record prices, driving up their costs of producing electricity.
The combination of these factors has pushed some companies to seek vertical integration by controlling their own supply of raw materials -- a main rationale behind Gas Natural's bid. Gas Natural hopes to use its plentiful supply of natural gas to power Endesa's gas-fired turbines, which produce cheaper and environmentally cleaner electricity than older coal-fired plants.
"Some utilities that have been squeezed by commodity prices on the one hand and by consumers and regulators at the other end are beginning to think they should move upstream, to capture a greater share of the energy value-chain margin," said Vittorio Perona, head of the power and natural-resources corporate-finance division at Dresdner Kleinwort Wasserstein.
Gas Natural, based in Barcelona, Spain, outlined details of its offer yesterday, arguing that it would spur competition to the benefit of consumers in Spain, while creating a strong "national champion" able to compete with other European energy titans when the continent's power markets are fully liberalized.
"The only possible solution" to growing energy demand in Europe is "more gas-fired plants," Mr. Villaseca said. "And that means utilities have to have a flexible and available supply of natural gas."
Rival Spanish utility Union Fenosa SA is following a similar strategy by teaming up with Italian oil-and-gas titan ENI SpA to build liquefication and regassification plants that will bring natural gas from Egypt to Spain by ship to power its turbines at a competitive price. In Germany, E.On relies on its E.On Ruhrgas unit to supply it with natural gas to power its turbines.
In the near term, the strategy carries financial risks. Credit concern Standard & Poor's Ratings Group placed Gas Natural and Endesa on review with a negative outlook yesterday, citing the increased debt load that the combined company would carry if the deal were successful. Gas Natural also must convince Spanish regulators that a merged company wouldn't have too dominant a position in Spain.
Gas Natural said it expects the deal to pass muster thanks to a pre-agreed selloff of some of Endesa's generation assets to a Spanish rival, Iberdrola, under a deal reached with Iberdrola.
The takeover offer sparked a rally in the shares of European utilities yesterday. The DJ Stoxx utilities index rose 1.5%.
Endesa's advisers are trying to determine whether other utilities could emerge as counterbidders. Any foreign bidder, though, risks entering a highly political dogfight.
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