A&O advises Gas Natural on £9bn bid

Allen & Overy (A&O) is understood to be at the heart of a Spanish power struggle in which Gas Natural, Spain's gas utility and an affiliate of oil and gas group Repsol, is planning a hostile bid for electricity company Iberdrola.

A team of banking partners in the firm's London and Spanish offices is believed to be putting together an acquisition finance package with Goldman Sachs and Citibank for Gas Natural, which is considering a takeover just days after Iberdrola and top utility company Endesa agreed to merge.

The firm is under added pressure given Spain's strict "certain funds" rules, which mean banks must produce a guarantee to the shareholders of the target company that the money is available.

That will have to be issued on the day that the hostile bid is announced, so the firm is manoeuvring to ensure finance is available should Gas Natural make a move to outbid Endesa's offer, which is worth more than euro15bn (£8.7bn).

Gas Natural has made an offer nearer euro16bn (£9.28bn), with half of it in cash, but although higher than the Endesa bid, the majority of the board refused to discuss it. The company has now refused to rule out a hostile approach.

A&O partners declined to comment on their involvement in the deal, which if successful would allay Repsol's fears of being excluded from a division of the Spanish power market.

If completed, the merged Endesa Iberdrola will be the fourth-largest energy utility after the US' Enron, Enel of Italy and EON of Germany.

A&O scooped the instruction after working with the banks on a $16.5bn (£11.3bn) financing for Repsol when it made a public bid for YPS in Argentina last year. Because some of the banks are the same, and the borrower is an affiliate of Repsol, the firm was approached to do this deal.

"Certain funds" legislation is paticularly onerous on the Continent. A&O recently acted on the Elf-Total bid under French law, which demands the same level of guarantee.