If at first you don't succeed, throw in the towel and move on to more promising prospects.
Although German utility giant E.ON (NYSE:EON) had hoped to bring Scottish Power (NYSE:SPI) into the fold, that deal couldn't happen, and so now the acquisition-intent company has moved on to court Spain's Endesa (NYSE:ELE) with a $35 billion all-cash offer. That offer tops another outstanding bid for Endesa from fellow Spaniard Gas Natural by some 30%. Interestingly, Endesa management did acknowledge the strength of E.ON's bid but also claimed that the higher price still doesn't reflect the company's true value.
At this point, it doesn't seem as though the Spanish government is about to pitch a fit on the order of what we saw in France, when rumors abounded that PepsiCo (NYSE:PEP) was doing to buy Danone (NYSE:DA). The Spanish prime minister has already suggested that the government isn't prepared to use its golden share to veto the deal. While there will be plenty of scrutiny from both Spain and the European Union, government officials would have a hard time blocking this deal and maintaining credibility when talking about free markets and reduced government interference in business.
So what does E.ON look to get for its nearly $66 billion -- an amount that includes Endesa's debt? Well, the deal would expand E.ON's reach to 50 million customers in 30 countries and would make the company a truly pan-European utility, stretching from Scandinavia into Iberia. On a side note, it would also give E.ON exposure to the French and Latin American markets -- areas that might be politically schizophrenic, but still lucrative.
Is E.ON overpaying? Probably, but there are obvious advantages to scale, and this pact would bring that in spades. Additionally, it seems that only an E.ON shareholder revolt or insurmountable government/regulatory obstacle would scupper the deal -- E.ON just has too much cash with which to raise its bid even if Gas Natural wanted to counterbid.
I've been a fan of E.ON for some time now. And while big deals like this make me a little nervous, I think I see at least some of the same virtues in the combination as management does. Stay tuned, though, and let's see how the various governmental bodies handle a cross-border buyout of this magnitude.
For more Foolish thoughts on utilities both here and abroad:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
