Gain in spain

Gas Natural’s controversial attempted takeover of Endesa would have been a lot more simple if the forthcoming competition laws were in place, says Antonio Morales

Without any doubt, the two events that have been the most influential, as well as controversial, over recent months from the perspective of Spanish competition law have been Gas Natural’s public takeover bid for Endesa and the long-awaited reform of Spanish competition law.

But to what extent would the application of the merger-control system, foreseen in the new competition act, have changed the final outcome of the Gas Natural offer? And what would have been the result of the process under future competition legislation?The draft of the new competition law does not include significant changes in relation to the criteria determining the need to notify a given transaction: the definition of what constitutes an economic concentration does not change (although it is clarified), while the alternative turnover and market share thresholds are maintained (although the latter is raised from 25 to 30 per cent). Therefore, three amendments introduced in the draft law must be underlined.

Structural reorganisationThe first amendment refers to the merger of the current Servicio de Defensa de la Competencia and the Tribunal de Defensa de la Competencia (TDC) into a single institution named Comisión Nacional de Defensa de la Competencia. The commission is a public law entity with its own legal personality and full capacity to act – although it is formally organised within the Ministry of Economy, it will be autonomous and independent.

Notwithstanding this structural reorganisation, the merger control procedure will remain substantially unchanged in relation to significant transactions such as the Gas Natural bid for Endesa. In this regard, the procedure will still be divided into two phases, the first being an analysis of the merger and the second a decision.

Adapting the systemThe second amendment consists of the elimination of the obligation to suspend the execution of public offerings for listed companies until they are expressly authorised by the competition authorities. This amendment has been introduced to adapt the Spanish system to the one that is in force in the EU for transactions with a community dimension.

However, the amendment will not, in principle, affect the exercising of the voting rights attached to the acquired shares. These voting rights will remain suspended until the final authorisation of the transaction is granted.

According to this draft amendment of the competition law, the Gas Natural offer for Endesa would not have been suspended until its authorisation by the merger control authorities. This would have probably reduced the long period of uncertainty both for the parties to the transactions and for the markets, which has led to the current situation where the future of the electric company remains unknown more than one year after the bid was launched.

Under the future system Gas Natural could have launched the bid immediately providing it had been willing to accept the risks inherent to the launch of the bid without knowing the decision of the merger control authorities. This early launching of the bid would probably have allowed Gas Natural to acquire Endesa, even though it would have refrained from exercising its voting rights until the effective authorisation was granted.

The third amendmentThe third relevant amendment of the draft relates to the clarification of the possibility that, following an invitation by the Ministry of Economy, the Council of Ministers may authorise a transaction previously blocked or authorised subject to conditions by the competition authorities. This may happen when the Council of Ministers understands that there are elements of “general interest” that recommend the authorisation of the merger.

As underlined before, this intervention by the Council of Ministers is not new, as it already exists under the current law, but the draft law casts a light on the specific grounds of general interest that may form the basis of a decision by the Council of Ministers. These grounds are “different from those taken into account for the defence of competition” and refer, inter alia, to the protection of the public health and/or security, the constitutional rights and/or liberties, the free movement of goods and services, the unity of the national market and the territorial economic balance and the guarantee of an adequate maintenance of the objectives of the sectorial regulation.

Although this is not new, as this possibility has been exercised by the Council of Ministers to conditionally authorise the Gas Natural offer, notwithstanding the previous recommendation of the TDC to prohibit it, the clarity introduced by this amendment would, in all likelihood, have changed the outcome of the appeal lodged by Endesa before the Tribunal Supremo against the authorisation by the Council of Ministers, which has resulted in the suspension of the process.

Furthermore, although the amendments introduced by the draft competition law in the current merger control procedure do not seem in principle to be particularly relevant, they do include certain changes that both clarify and speed up the procedure. It is not unlikely that, should this new regime have been applied to the Gas Natural offer for Endesa, the authorisation process would have been rather different.

Moreover, the long authorisation process of the offer, which has damaged both the parties and the markets due to the uncertainty it has caused, would have been significantly reduced, allowing the shareholders of Endesa to take a decision a long time ago.

Antonio Morales is a partner at Lovells. He was assisted by senior lawyer Casto González-Páramo