The Battle for Endesa: Worth E.ON’s Energy?

Series: Global Network for Advanced Management in conjunction with the IE Business School
Format: Raw, online case
Topics: Public Policy, Competition and Strategy, Economics, Regulation, Global Business, Energy, Technology 
Initial date of publication: March 2013
Geographic setting of case: Spain, Germany, Italy
Access: Available to educational institutions by emailing

Overview: There were not many lawyers in charge of Europe’s largest multinationals, but even among them Wulf H. Bernotat stood out. Having obtained a doctorate in law from the University of Göttigen in Germany, Bernotat remained comfortable talking about the intricacies of European business law long after he had switched from his first job in Shell’s legal division to the marketing department. Now, many years later, as the CEO of Germany’s E.ON, Europe’s second largest electricity company, Bernotat found himself in one of the most trying battles of his life, one that demanded his entire legal, political, and business savvy.

A strong believer in the benefits of fully-liberalized energy markets and industry consolidation, Bernotat had assumed the job as CEO in 2003 with the goal of making E.ON a global energy giant. He had apparently been handed a golden opportunity when Endesa, the leading Spanish electricity firm with substantial holdings in Latin America, was put into play following a takeover bid from Gas Natural, its much smaller, Barcelona-based rival. Endesa’s board had rejected the bid outright as too low and had vowed to defend the company’s independence. But by the end of the year, it had become clear that Endesa would need a partner to fight off the challenge. That was when Bernotat had sensed his chance—E.ON was poised and ready to execute a competing bid. After recording profits of more than €5.5 billion in 2005, Bernotat knew that he could outgun the Catalan firm with his superior financial resources.  And while Manuel Pizarro, Endesa’s outspoken president, continued to tell shareholders and stakeholders alike that Endesa should remain independent, Bernotat knew the Spanish utility much preferred a deal with E.ON than to be acquired by its smaller local rival. He seized the chance and on February 21, 2006, E.ON offered €27.50 per share of Endesa, €6.20 more than Gas Natural’s September 5, 2005 bid.

It did not take long for the battle to turn ugly. From day one, Bernotat had faced numerous obstacles, including the Spanish government’s overt hostility to E.ON, a German company, taking over Endesa, a powerful Spanish multinational. The Spanish government was prepared to make sudden and seemingly arbitrary changes of Spanish law to subject foreign bidders to extra scrutiny, including a series of seemingly improvised merger conditions. The maneuverings by the Spanish authorities prompted a confrontation between the Spanish government and the European Commission and had led to a public sparring match between Spanish Prime Minister, José Luis Rodríguez Zapatero and German Chancellor Angela Merkel.

Through all of this, Bernotat stuck to his strategy: E.ON’s all-cash bid offered Endesa shareholders the best value. There was no question in his mind that E.ON’s bid was legal and supported by the European Commission. He was quite certain that E.ON would prevail, especially after he had increased the offer to make it even more attractive. As Bernotat expected, Gas Natural dropped out of the contest for Endessa.

But Gas Natural’s withdrawal did not mean the road for E.ON was clear. Acciona, a family-owned Spanish construction multinational with close ties to the government, announced that it had purchased 10 percent of Endesa shares in the open market. Days later, Acciona announced that it had purchased an additional 11 percent stake. By January 2007, it had become Endesa’s largest shareholder. Acciona chairman Jose Entrecanales announced plans to acquire up to 25 percent, just below the threshold that would have triggered a mandatory automatic bid for all of Endesa. E.ON, meanwhile, still did not own a single Endesa share. Spanish takeover law prevented a public bidder from acquiring shares in the open market until its bid had officially closed. The playing field had changed and Bernotat knew it was an uphill battle.

As troubling as Acciona’s play was, E.ON was stunned at the end of February 2007, by a simple, five-line press release from Enel, Italy’s leading energy firm:

Enel informs to have completed, today, the acquisition of 105,800,000 shares in Endesa SA representing 9.99 percent of the Spanish company’s share capital at the price of 39 euros per share. This shareholdings acquisition in Endesa, the leading Spanish utility, is part of Enel’s strategy aimed at strengthening the company’s position on the European electricity market.

This latest twist in the plot caught Bernotat and his team off guard. They knew they had some decisions to make. Enel’s management stood poised to acquire up to 25 percent of Endesa’s shares, just below the mark that would trigger an automatic full bid. Rumors that the Italian multinational would team up with Acciona to launch a joint bid rocked the market. A Spanish government spokesman in Madrid expressed support for a “Spanish-Italian solution,” though other officials stressed again that Endesa’s future was in the hands of its shareholders. The Endesa board publicly endorsed E.ON’s bid, but would that be enough to convince a majority of shareholders to accept E.ON’s latest offer? Would the potential Acciona-Enel alliance gather more supporters to block E.ON’s efforts? Could he fight Acciona and Enel’s entry in the courts? Could E.ON preempt such efforts by paying even more? Or had the matter become so political that a call to Berlin, to Chancellor Merkel, should be the next step?

Bernotat could sense that the battle over Endesa was entering a critical phase, but it was still too early to tell how the story would end. Gazing out at the steadily flowing Rhine River from his ninth-floor office, Bernotat was determined to make the acquisition happen and write a new chapter in E.ON’s history.