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Last Updated: Tuesday, 26 September 2006, 20:27 GMT 21:27 UK
E.ON raises its offer for Endesa
EU Competition Commissioner Neelie Kroes
Competition commissioner Neelie Kroes is stamping on protectionism
German energy giant E.ON has increased its takeover bid for Spanish power firm Endesa to 37bn euros ($47bn; 25bn).

The news came after the European Commission ruled that Spain broke EU law in putting restrictions on E.ON's efforts to buy the company.

While Spain approved E.ON's earlier 27bn euro ($34bn; 18bn) bid, it gave its national energy agency powers to impose harsh conditions on the merger.

The EU hopes to strike a landmark victory over European protectionism.

A number of member states have tried to block takeovers of key companies.

"Against the background of the recent developments with regard to Endesa, E.ON reinforces its commitment to a successful transaction," E.ON said in a statement.

Spain had originally favoured an earlier, lower bid for Endesa made by domestic utility company Gas Natural, which would have created an all-Spanish energy giant.

Commission clampdown

The Commission's verdict against Spain was widely expected and focused on two main breaches of EU law.

It said that Spain acted illegally in usurping Brussels' powers to impose conditions on mergers such as that proposed for E.ON and Endesa.

The conditions imposed by Spain's power regulator, the National Energy Commission (CNE) also broke EU rules on the free movement of capital, the European Commission said in a statement.

The CNE's 19 conditions would have led to Endesa - Spain's largest electricity company - having to sell off a nuclear power station and other energy generating assets.

"The Commission's decision that the conditions imposed by the CNE on E.ON are unlawful requires Spain to withdraw them," it said.

"The Commission's decision is legally binding and could be invoked before a national court or public authority in Spain."

The European Commission's actions are set to serve as a major warning to any EU member states who want to prevent flagship companies from falling into foreign hands.

Commissioners have repeatedly warned that protectionist measures will not be tolerated.

Raising the stakes

Despite the ruling, E.ON's bid for Endesa could be hit by another buyer that has been snapping up the company's shares.

Earlier this week, Acciona, a Spanish engineering and building group, surprised the markets by spending 3.9bn euros on a 10% stake in Endesa.

Gas Natural sign
Gas Natural was Spain's favoured bidder for Endesa

The shares were bought at 32 euros each, a significant premium to the 25.4 euros a share offered in E.ON's bid.

Acciona insisted it was acting alone, but said it could raise its stake in Endesa to 24.9%.

This would be enough to give it a major say in the company's management, but is just below the level that would trigger a bid for the whole company under Spanish takeover law.

The Spanish government said it did not "support or oppose" Acciona's share purchases.

Many analysts expect E.ON to increase its offer for Endesa in order to win over shareholders.

Spanish firm buys 10% of Endesa
25 Sep 06 |  Business
Spain slammed over Endesa merger
25 Aug 06 |  Business
Spanish energy tussle hots up
07 Aug 06 |  Business
E.ON's Endesa bid gets go-ahead
28 Jul 06 |  Business
E.ON in $35bn Endesa takeover bid
21 Feb 06 |  Business
Madrid backs Gas Natural takeover
03 Feb 06 |  Business

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