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Endesa Chief Speaks Out Against Gas Natural Bid

Posted on: Thursday, 6 October 2005, 12:00 CDT

By Heather Timmons

Gas Natural's 22.4 billion hostile bid for the Spanish energy company Endesa is a value-destroying, politically motivated mistake, Rafael Miranda, Endesa's chief executive, said Wednesday. Endesa is mounting a spirited defense to the Gas Natural offer, and the company has pledged to increase dividends and net income 12 percent a year over the next 5 years, while selling nonstrategic assets and returning the cash to shareholders. The company's management has also revamped its compensation, promising to forgo bonuses for the next five years if Endesa's share price drops to 18.56, or $22.19, a share, where it was trading Sept. 2, four days before the Gas Natural offer. Gas Natural's offer would bring together Spain's largest natural gas company with the country's top electricity provider, a combination that some analysts believe is the best way forward for energy companies. "We agree that integration is a sound idea, but it's important who you integrate with," Miranda said Wednesday in an interview in London. Gas Natural's management has no experience merging companies and has overestimated the synergies it can get through a combination with Endesa, he said. Gas Natural's hostile offer for Endesa, a company about double its size, is stirring up controversy in Europe, where European Commission regulators are eager to create Continent-spanning energy giants, but individual countries are loath to lose their national giants. It has also sparked bitter exchanges between the two management teams. In a statement Wednesday, Gas Natural called Endesa's profit growth plans unrealistic, and said that it might take legal action against the company for explaining the bid in an "inexact, biased and deliberately confusing way."

It is unclear whether Spain's energy regulator or the European Commission will rule on the deal, but analysts think the commission is more likely to strike it down. Endesa fears that the Spanish government will back Gas Natural for political reasons, analysts say, because Prime Minister Jose Luis Rodriguez Zapatero will want to please his allies in the Catalan regional government. Gas Natural is based in Barcelona, the heart of the Catalan region. A crucial part of Gas Natural's hostile offer is the company's pledge to sell off some assets in Europe to Iberdrola, the other big company in the Spanish gas markets. The asset sales, which are being used to finance the deal, would leave the combined Gas Natural and Endesa with a smaller stake in electricity generation capacity, and would shrink its international presence, Miranda said.

The strategy is a "rip-off" for Endesa shareholders, he said. By offering to sell some assets after the deal is done to Iberdrola, Gas Natural is trying to "buy the silence" of Iberdrola, which might otherwise contest the deal, Miranda said.

Source: International Herald Tribune

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