Weak Defense Lines

DUESSELDORF/ESSEN | | spanienitalienfrankreichniederlandeoesterreich

DUESSELDORF/ESSEN (Own report) - Anxiety is growing in several European states, that Germany could take control over their strategically important national power supply, because of the expansionist endeavors of German energy companies, such as Eon and RWE. Some governments are merging their national energy suppliers, in an attempt to impede these efforts - until now without much success. These preventive measures are encountering not only domestic difficulties, the European commission is declaring these efforts as in "violation of the freedom of capital". Spain, for example, is putting up a resistance to Eon buying into its largest native power supplier, but probably will succumb to the pressure from Brussels and will finally accept the offer made by the German energy giant. In France and Austria efforts to establish "national safeguards" against takeover attempts by foreign energy companies, had to be postponed until the fall, due to strong resistance. Lastly a takeover battle is approaching the Netherlands, which could lead to her loss of control over her energy supply to German companies.

In Spain the Eon AG continues to advance with its planned takeover of Endesa, the largest energy supplier of the country. This would place the German company in the position of world leader in electricity and gas, but simultaneously would clearly weaken the national energy basis of Spain, as well as appreciably diminish Madrid's influence in its Latin American sphere of interests.[1]

Victory by Points

The German energy supplier receives the backing of the European commission for its billion Euro takeover offer. To prevent Eon's takeover of Endesa, Spain rapidly passed numerous special legislation regulating the energy market, among which was also a law permitting the blockage of a takeover, as soon as the strategic interests of the country are endangered. The European commission ruled that, this law is in contradiction with the free European internal market and has initiated a disciplinary procedure against Spain, accusing it of a violation of contract procedure, because of the preventive measures for its domestic energy sector. But the EU gave the German company the green light for the takeover. Competition in Europe will "not be impaired" by Eon's takeover of Endesa, is how the commission justified its decision, which is viewed as an important Eon victory by points.[2]

Sure of Victory

In the conflict about the takeover of the Spanish energy sector, even the country's Supreme Court in Madrid ruled in favor of the German Eon company. The Spanish government endorses a takeover of Endesa by the Spanish supplier Gas Natural, in order to keep this strategically important energy sector under national control. But the Spanish Supreme Court rejected the merger of the national suppliers, Gas Natural and Endesa, because of legal misgivings and has now even refused to hear the Spanish government's appeal against its decision.[3] The Spanish national energy commission, whose authority has been extended particularly for this purpose, is currently still examining whether the takeover by Eon is permissible. But the European Commissioner for Competition, Neelie Kroes, has already threatened to intervene, if the Spanish regulators should block the takeover by Eon. The German energy company is therefore sure of victory in this Endesa takeover conflict, that has lasted more than four months. The chairman of the board, Wulf Bernotat, anticipates an unconditional administrative approval, even before the Spanish political summer vacation August 1 commences. From his point of view, there is "no rational reason", why the Spanish regulating authority CNE should forbid the takeover.[4]

Domino

The forthcoming takeover of Endesa also worries the formerly state-owned Italian supplier, Enel, which is already afraid of competition from the expanding German companies onto the home market.[5] With a fusion of Endesa and Gas Natural, Enel was hoping to be able to buy up those sections of the joint enterprise that the Spaniards, for competition reasons, would have wanted to sell. After Eon foiled these plans, Enel considered a takeover of the French competitor Suez. The German press reported that the Italians were acting "out of despair", because Enel had waited too long before beginning with its foreign expansion and now is threatened with being left empty-handed, in the jockeying for European merger partners.[6] At the same time these Italian ambitions are alarming the French government, which wants to defend itself by uniting the private Suez water and energy company with the state-owned Gaz de France. But this planned fusion has encountered such strong resistance at home, that the project had to be postponed until autumn. In this case, resistance is also coming from Brussels. The EU commission has announced that it has "serious competition doubts" concerning the Suez and Gaz de France merger and was therefore initiating a "particularly stringent examination".[7]

Safeguard

Austria, for the time being, has also failed in its attempt to block the advance of German energy companies, through a national merger. The countries two largest energy companies (the Oil and Gas Company, OMV, and the Electric Society Inc.) are standing under massive pressure from the government in Vienna, to merger, for protection from a hostile takeover. The talk in Austrian government circles is of a "national safeguard" against Eon's and RWE's intensified plans to extend into Austria. The project could not be put through because it lacked the accord of the Social-Democratic Party. A second try at launching this project had been postponed until after the autumn parliamentary elections.[8]

New Opening

The OMV and Electric Society fusion, intended as a preventive measure, could, at the same time, prove to be a new opening for the German companies. Since 1945, it has been law in Austria, that all of the country's major electrical power companies must be majority state-owned, either by national or regional states. The fusion of these two suppliers is only possible if this clause is abdicated. Therefore in the future, each regional state government of the republic will be allowed to relinquish its majority shares to local power suppliers. Among others, this would be of particular concern to the regional state of Lower Austria, where the German electric company, EnBW, carries 30 percent holdings in the regional power supplier EVN. A majority takeover is feared. In the state of Kaernten, even the constitution is to be changed, in order to prevent RWE from taking over the regional electric supplier Kelag. Since 2001 the German company holds approximately one third of the Kelag shares, but has secured the option, that as soon as the Austrian electric market is liberalized, RWE can buy a majority of the shares.[9]

Subsidiary

Also in the Netherlands the two largest energy companies, Nuon and Essent, are trying to establish a common defense against a takeover by foreign competitors. The country is a target in a large-scale expansion offensive of the largest German electricity supplier, RWE, which has made known its intention to rise to become the leading electricity and gas enterprise in this neighboring country.[10] The two suppliers Nuon and Essent, which are majority owned by cities and provinces, of the Netherlands, are allegedly preparing a merger, to prevent a takeover by foreign competitors such as RWE or Suez. Groups of the Nuon shareholders are saying "We do not want to become a German or French subsidiary".[11]

Before the Battle

A few years ago, a fusion between Nuon and Essent had already once been a failure, due to a veto imposed by the Cartel Office of the Netherlands. This fall a new law is supposed to be enacted, which will split up the largely nationalized energy companies into production and distribution units, whereby the suppliers will lose their control over their electrical grid. Then, at the latest, a takeover battle will take place over the relatively small, on the international scale, energy companies of the Netherlands. But the German companies are well prepared.

[1] see also Wir kaufen alles
[2] Gegen Spaniens Willen; Manager Magazin 25.04.2006. Eon erhält erneut Unterstützung aus Brüssel; Handelsblatt 02.05.2006
[3] Spanisches Gericht stützt Eon; Frankfurter Allgemeine Zeitung 20.06.2006
[4] Eon-Chef gibt sich bei Endesa siegessicher; Handelsblatt 21.06.2006. E.on erwartet Genehmigung zur Endesa-Übernahme noch im Juli; Die Welt 21.06.2006
[5] see also Taking a global lead
[6] Verzweifelte Hoffnung; Handelsblatt 20.06.2006
[7] Frankreich verschiebt Fusion von Energieriesen; Spiegel online 16.06.2006. EU leitet eingehende Prüfung der Fusion von GdF und Suez ein; Dow Jones Newswires 19.06.2006. Paris treibt Energiefusion voran; Financial Times Deutschland 20.06.2006. Widerstand gegen Suez-GdF-Fusion in Frankreich; Dow Jones Newswires 21.06.2006. See also Abwehrschlacht
[8] Wien schottet Energiemarkt mit Großfusion ab; Financial Times Deutschland 09.05.2006. Österreichische Energiefusion soll neu aufgerollt werden; Financial Times Deutschland 25.05.2006
[9] Geht die Kelag-Mehrheit an RWE?; Kleine Zeitung 18.05.2006. Jörg Haider organisiert Widerstand gegen RWE; Financial Times Deutschland 19.05.2006. See also Widerstand gegen E.on-Expansion in Österreich and Expansion deutscher Energiekonzerne trifft auf Widerstand
[10] see also Kühler Kopf and Geheimprojekt
[11] Holländische Abwehrfront; Die Welt 15.06.2006

see also Energie für Deutschland (I) and Energy for Germany (II)