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Spanish utilities eye link
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October 17, 2000: 6:59 a.m. ET
Power generators Endesa, Iberdrola mull merger plan; Gas Natural lurks
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LONDON (CNNfn) - Boards of Spain's two biggest power companies Endesa SA and Iberdrola SA were meeting separately Tuesday to consider merging their businesses in a deal likely to value Iberdrola at at least  14 billion ($11.8 billion).
The power generators, which said last month they were holding merger talks, which notified Spain's stock market authority of their deliberations, are holding their latest meetings against the background of a proposal by Gas Natural, Spain's biggest gas company, to merge with Iberdrola.
While Endesa is seen as the frontrunner, analysts said it was far from  certain which company will win the fight to control Iberdrola. Gas Natural's 45 percent controlling shareholder, oil company Repsol YPF SA, confirmed last week it was negotiating with bankers for a loan of up to 10 billion ($8.6 billion) and said it was studying possible actions to defend its interests in case Endesa and Iberdrola seek to join forces.
"The outcome of this is incredibly uncertain," said an analyst who spoke on condition of anonymity. "The market is thinking that Endesa-Iberdrola is a done deal - but it's a bit early for that."
Asked whether the rival suitors are likely to spark a bidding war, the analyst said "probably not... but then again, a negotiated settlement will also be difficult."
A key factor in the outcome could be the attitude of the Spanish government, which has "golden shares" in both Endesa and Iberdrola - meaning it can veto strategic decisions. The state also appointed both companies' chairmen.
Also unresolved is where shareholders stand - Spanish banking titan BBVA has 4 seats on Iberdrola's board and owns nearly 10 percent of its shares. BBVA also owns about 3 percent of Endesa stock.
No terms disclosed for Gas Natural bid
Gas Natural last week said it was ready to pay half cash and half shares for Iberdrola, appearing to signal a takeover bid. But the gas firm did not put a value on plan to buy the power company. According to Spanish business newspaper Expansión, Endesa would also offer a combination of cash and shares in a proportion that has not been yet announced.
A spokesperson for Endesa said a statement would be forthcoming if the two companies could agree on terms of a deal.
For Endesa, Spain's largest electricity utility, plugging in with Iberdrola would allow it to increase the efficiency of its power generating assets by adding Iberdrola's hydro-electric and nuclear generators.
However, any significant increase in Endesa's size would probably meet a government veto. Analysts said the state has insisted that no company should be any bigger than Endesa's current size, and that it wants at least four large players to continue to exist in the electricity industry to ensure competition.
Iberdrola and Endesa together account for some 80 percent of Spain's power supply. If it buys Iberdrola, therefore, it's likely Endesa would be required to sell some assets, which would also raise money for European expansion down the road.
"Endesa wants to buy Iberdrola, sell off some assets, and then use that financial muscle it gets through those sales to grow internationally," said the analyst. However, he said Gas Natural "could probably offer higher terms, because the synergies appear greater there."
Buying Iberdrola would allow it to reap cost savings by combining its gas facilities with Iberdrola's plants, he said.
At Monday's closing price Iberdrola had a market capitalization of around $11.8 billion, up more than 20 percent since speculation about a takeover first surfaced in mid-September.
Gas Natural's market value was about 9 billion and Repsol's was roughly 25 billion, slightly ahead of Endesa's 22.8 billion. 
-- from staff and wire reports
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Endesa
Iberdrola
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