European Commission rules on proposed takeover of Endesa

The European Commission has ruled that the implementation of new legislation inhibiting E.ON’s acquisition of Endesa was contrary to Article 21 of the EU Merger Regulation. The new legislation increased the supervisory powers of the Energy Regulator CNE and thereby imposed a number of extra conditions on the acquisition. The background to the ruling is as follows:

• E.ON (a German energy company) launched a bid for the acquisition of Endesa (a Spanish energy company) in February 2006.
• The Commission, after receiving notification of the acquisition by E.ON, decided that the transaction constituted a concentration with a Community dimension and approved the proposed transaction.
• Spain introduced new legislation increasing the supervisory powers of the Energy Regulator CNE. The new law increased the control on: "acquisitions of over 10% of share capital, or any percentage giving significant influence, in a company that engages, directly or indirectly, in regulated activities or activities subject to special administrative control". "the direct acquisition of assets to carry out these activities".
• The Commission started infringement procedures against Spain and decided that the new Spanish legislation violated the freedom of capital movement and the right of establishment. The Commission noted that the competitive impact of concentrations with a Community dimension should be assessed exclusively by the Commission and therefore national competition law cannot be applied to such transactions. No measures can therefore be taken which could prejudice such concentrations, unless these measures: "protect interests other than competition", and; "are necessary and proportionate to protect interests which are compatible with all aspects of Community law".

This would include public security and prudential rules.

The decision will be of keen interest to investors and companies that are contemplating M&As in regulated sectors in the EU. In addition, governments and regulatory bodies would need to consider their existing and any proposed controls on acquisitions of regulated companies in the context of the Commission's decision.