The European Union's second-highest court on Wednesday upheld the European Commission's veto of plans by Energias de Portugal (EDP) and Italy's ENI to buy Gas de Portugal (GDP).
The ruling could have Europe-wide ramifications, with EU Competition Commissioner Neelie Kroes saying she would "take account" of it in considering plans by Germany's E.ON to buy the gas business of Hungary's MOL .
"The strengthening of the dominant position of Energias de Portugal on the electricity markets is in itself sufficient to justify the decision," to ban the deal, the court said.
The Commission decided late last year that the benefits of power liberalisation in Portugal would be strangled if EDP and ENI bought Gas de Portugal in the 1.2 billion euro ($1.46 billion) merger.
Shares in EDP, Portugal's biggest industrial company and its largest power firm, closed down 0.85 percent at 2.31 euros. The DJStoxx utilities index <.SX6P> dropped 3.10 percent while ENI was up 0.04 percent.
"The Court's judgment confirms the standard against which mergers involving energy incumbents should be assessed in Europe," Kroes said in a statement.
"This type of merger can result in higher prices for national consumers and industrial users and, thus, in a loss of competitiveness for the whole economy," Kroes said. The decision was an important victory for the Commission, which had three previous merger bans overturned by European Union courts.
Portugal's previous centre-right government backed EDP's argument that the merger would allow it to compete in a proposed single Iberian power market, which is billed to become the biggest spot market in Europe.
Portugal's new Socialist government, which came to power in March, said the decision removed the last big obstacle to competition in the local market.
"We have to think about new business models, it is possible with more competition with more efficient firms," Portugal's Economy Minister Manuel Pinho said.
Pinho's government has so far presented no plan for the country's energy sector but he said on Wednesday the state hoped to sell a 5 percent stake in EDP by year-end. The government holds roughly 25 percent of EDP.
Analysts said the decision was not positive for EDP.
"At first sight, this decision is not good for EDP because it inhibits the future strategy of boosting its competitive position by acquiring the gas assets," said Helena Barbosa, analyst at Caixa Banco de Investimento.
ENI WON'T GIVE UP
A spokesman for EDP said the company would not comment until it had studied the decision.
ENI Chief Executive Paolo Scaroni said his firm would not give up easily on its presence in Portugal's gas market. ENI has an option to buy a controlling stake in state-controlled Galpenergia, Portugal's main oil firm and the owner of GDP.
Without giving details, Pinho said "the big priority is to resolve the problem with ENI," which would involve complicated negotiations.
EDP has said its plans to buy GDP took on new importance with the hostile bid by Spain's Gas Natural for power company Endesa -- a view shared by some analysts.
Spain's Industry Minister Jose Montilla, who met with Pinho on Wednesday, said the Spanish government would not seek a decision by Brussels on Gas Natural's bid for Endesa.
Kroes said it still had to be confirmed whether the Gas Natural-Endesa deal would be overseen by Spanish or EU regulators. "As soon as that is clear we will let you know," she told a news conference in Brussels.
Under EU rules, companies planning to merge and which each generate two-thirds of their revenues in one member country must seek approval from domestic regulators in that country.
Under EDP's plans, it would acquire 51 percent of GDP and ENI would have bought the remaining 49 percent.
Source: Reuters
22.09.2005