MADRID v BRUSSELS

by RAY FLEMING
THE resistance by the Spanish government to a German company's attempt to take over Spain's main electricity group is turning into an instructive trial of strength between a member state of the European Union and the EU Commission in Brussels. To begin with it seemed simple enough: the German energy giant E.ON liked the look of Spain's major energy group Endesa and offered 29.1 billion euros. However it soon became clear that the Spanish government did not like the deal and would prefer that Endesa should accept a lower bid from Spain's Gas Natural, thus creating a “national energy champion”. In addition, Madrid introduced retrospective legislation to enable its energy regulator to review mergers in the light of national strategic interests, a move which Brussels interpreted as illegal interference in the free movement of capital within the EU.
The position now is that Spain is willing to see Endesa sold to E.ON provided that some 19 onerous conditions are met first. These include a provision that the merged company would have to sell a substantial part of its assets including its supply business in the Balearics. The conditions were defended by the government on the grounds of public security but this argument has been dismissed by Brussels; the Commission has also insisted that it has sole authority over cross-border takeovers and that national law does not apply to such deals. The Spanish government has been asked to respond by September 4.