29
Sep

Spain industry: Energy protectionism overcome? from The Economist

Escrito el 29 septiembre 2006 por Rafael Pampillón en Economía española

The Economist said “The European Commission has emphatically overruled the Spain’s energy regulator, which tried illegally to block the takeover of local power group Endesa by Germany’s E.On. The game is still not over, as another Spanish company, Acciona, has now acquired a minority stake in Endesa. Plans are also evolving to create a rival national energy champion, by merging the number two and three Spanish energy companies. Whether or not E.On persists in its bitterly-fought takeover attempt will be a crucial test of the European Commission’s indefatigable efforts to create a single European energy market. The resistance shown by the Spanish authorities has been surprising, given its pro-EU rhetoric, and its policy can only backfire–not only on itself, but on consumers and the foreign ambitions of Spanish companies. Neelie Kroes, the EU’s Competition Commissioner, has again shown her resolve in forcing open Europe’s markets, especially in energy. Her ruling on September 26th that Spain had broken EU competition law in effect by blocking the bid by Germany electricity giant E.On for Endesa, Spain’s leading power group, is a major boost for the creation of an EU-wide energy market. The move is important because it attacks the Spanish authorities, rather than merely the defensive tactics of a target company. Given the size of the bid, which currently values Endesa at around €37bn (US$47bn), and would be the largest ever energy deal in Europe, the Commission’s move sets a clear benchmark for the behaviour of a state in any future cross-border energy deals.”

The consolidation of Europe’s energy sector will continue, whether this involves the merger of home-grown “national champions” or cross-border mergers. The Spanish government’s apparent defensiveness about the benefits of creating a free European market in energy is counterproductive. Although fearing that foreign ownership might work to hike domestic electricity prices, the purpose of a level-playing field is to achieve the exact opposite. “Moreover, such protectionism may have harmed Spanish companies seeking foreign acquisitions, some of whom have complained privately of getting a hostile reception from the target company’s national regulator. How accommodating, for example, might German investors and regulators be towards the next Spanish company that seeks to make a purchase there? Road operator Albertis has already had a taste of protectionism in Italy where it bid for its Italian counterpart Autostrade. Spanish companies have shown that they want to be more active in Europe, but so far their successes in the last couple of years have been mainly in the UK: telecoms group Telefonica acquired UK mobile operator O2 for $31bn; a Ferrovial-led consortium acquired airport operator BAA for $17bn; and in 2004, Banco Santander and Central Hispano bought Abbey National Bank. The UK government is one of the most receptive in the EU to the benefits of foreign direct investment; the same cannot be assumed elsewhere. The attitude of the Spanish government in failing to learn the lessons of protectionism only serves to entrench anti-competitive attitudes in Europe, harm domestic consumers, and set back the international ambitions of its home-grown companies”.

Comentarios

Alvaro Carpio Colon 1 octubre 2006 - 16:30

I have been constantly unsettled trying to understand the rationale behind the idea of economic nationalism and protectionism. What is the logic that governments follow to disregard the positive effects from merger and acquisitions just because the bids come from a foreign firms. It does not make sense to me that governments that supposedly have a liberal stand point of view start to intervene and interfere in this type of operations. I can not understand how these governments ignore benefits like the possible increased negotiating power with suppliers and the synergies that might be created in purchasing, manufacturing and marketing.
Focusing on the Spanish example, what is the meaning of the release made by Fernando Moraleda the communication government official when he says; “Spanish government respects the market rules, but it has the conviction that in an strategic sector like the energy one it is in the best interest of Spain to have a company that is ruled by a national firm.”
At this point I ask myself what are those “national interests” that the communication official talks about? Does not a merger suppose to create wealth and value?
After a period of clear rejection the Spanish government has been forced to step back and listen to Neelie Kroes, the EU’s Competition Commissioner who said that “Spain has broken EU competition law in effect by blocking the merger.” Therefore, the Spanish government “has accepted” the takeover by imposing 19 restrictions, which range from the “divesture of the firm operations on the Balearic and Canary Islands, and in northern Africa, to the sale of the only nuclear-power plant wholly owned by Endesa.”
So now my question is how these impositions help Spanish interests? From my point of view, this protectionism only adds costs to the opeation and dificultate the creation of value. On the other hand, what about the shareholders? Is not the company suppose to be ruled by the shareholders? Do they have any power to contradict the government decisions? Where is their choice reflected?
An excerpt from an article in the economist ilustrates an idea that many people share on what is really influence from cross-border mergers and acquisitions; “What is affected, however, is the ability of governments and of individual politicians to use patronage at favoured firms to help their friends, to get favours in return, to support special interests such as trade unions, and, in broad political terms, to paint themselves as patriots. Consumers aren’t helped, living standards don’t rise, the nation as a whole is not better off. But the political and corporate elite may well be.”*
From this confusion I have, I ask myself what is the dominance a government should exert over its corporate scene? And what are the real implications behind the interventionism that the governments impose on these operations?

* http://economist.com/opinion/displaystory.cfm?story_id=E1_VVSVNGN

Chris 25 febrero 2008 - 14:46

There have been a lot of political fights behind the scene in the Endesa acquisition case so it cannot be analysed only from an economical point of view.

The first attempt to buy Endesa came from the Spanish gas company Gas Natural which is owned by amongst others Caixa Catalunya (a Spanish savings bank from Catalonian where the Catalonian Socialist government has a lot of power). One of the main share holders of Endesa is Caja Madrid (another savings bank but in this case located in Madrid and controlled by the local government in Madrid which is leaded by the conservative party). Caja Madrid / Endesa opposed the offer made by Gas Natural and many people believe this is the main reason why the socialist government opposed the E-On acquisition.

This political fight has become even clearer today where the former president of Endesa Pizarro is now representing the conservative party as the second candidate after the leader Mariano Rajoy in the upcoming elections (marts 9th 2008)

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Debbra 11 noviembre 2012 - 09:54

After I initially commented I seem to have clicked on the -Notify me when new comments are added-
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Perhaps there is a way you are able to remove me from that service?

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