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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT UNDER
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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ENDESA, S.A.
(Name of Subject Company)
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ENDESA, S.A.
(Name of Person(s) Filing Statement)
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Ordinary shares, nominal value (euro)1.20 each
American Depositary Shares, each representing the right to receive
one ordinary share
(Title of Class of Securities)
00029274F1
(CUSIP Number of Class of Securities)
Alvaro Perez de Lema
Authorized Representative of Endesa, S.A.
410 Park Avenue, Suite 410
New York, NY 10022
(212) 750-7200
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing Statement)
With a Copy to:
Sergio J. Galvis, Richard A. Pollack, Angel L. Saad
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
1 (212) 558-4000
|X| Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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IMPORTANT LEGAL INFORMATION
The following document was made available to shareholdersof Endesa, S.A.
(the "Company" or "Endesa") on October 6th, 2005. Endesa shareholders are urged
to read Endesa's Solicitation/Recommendation Statement on Schedule 14D-9 when it
is filed by the Company with the U.S. Securities and Exchange Commission (the
"SEC"), as it will contain important information. The
Solicitation/Recommendation Statement and other public filings made from time to
time by the Company with the SEC are available without charge from the SEC's
website at www.sec.gov and at the Company's principal executive offices in
Madrid, Spain.
Statements in this document other than factual or historical information are
"forward-looking statements" within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. Forward-looking statements regarding Endesa's
anticipated financial and operating results and statistics are not guarantees of
future performance and are subject to material risks, uncertainties, changes and
other factors which may be beyond Endesa's control or may be difficult to
predict.
Forward-looking statements could include, but are not limited to, statements
regarding: (1) estimated future earnings; (2) anticipated increases in wind and
CCGTs generation and market share; (3) expected increases in demand for gas and
gas sourcing; (4) management strategy and goals; (5) estimated cost reductions
and increased efficiency; (6) anticipated developments affecting tariffs,
pricing structures and other regulatory matters; (7) anticipated growth in
Italy, France and elsewhere in Europe; (8) estimated capital expenditures and
other investments; (9) expected asset disposals; (10) estimated increases in
capacity and output and changes in capacity mix; (11) repowering of capacity;
and (12) macroeconomic conditions. For all of these-forward looking statements,
Endesa claims the protection of the safe harbor for forward-looking statements
contained in the U.S. Private Securities Litigation Reform Act of 1995. Endesa
disclaims any obligation to revise or update any forward-looking statements in
this document.
The following important factors, in addition to those discussed elsewhere in
this document, could cause actual financial and operating results and statistics
to differ materially from those expressed in our forward-looking statements:
o Economic and Industry Conditions: materially adverse changes in
economic or industry conditions generally or in our markets; the
effect of existing regulations and regulatory changes; tariff
reductions; the impact of any fluctuations in interest rates; the
impact of fluctuations in exchange rates; natural disasters; the
impact of more stringent environmental regulations and the inherent
environmental risks relating to our business operations; and the
potential liabilities relating to our nuclear facilities.
o Transaction or Commercial Factors: any delays in or failure to obtain
necessary regulatory, antitrust and other approvals for our proposed
acquisitions or asset disposals, or any conditions imposed in
connection with such approvals; our ability to integrate acquired
businesses successfully; the challenges inherent in diverting
management's focus and resources from other strategic opportunities
and from operational matters during the process of integrating
acquired businesses; the outcome of any negotiations with partners and
governments; any delays in or failure to obtain necessary regulatory
approvals (including environmental) to construct new facilities or
repower or enhance our existing facilities; shortages or changes in
the price of equipment, materials or labor; opposition of political
and ethnic groups; adverse changes in the political and regulatory
environment in the countries where we and our related companies
operate; adverse weather conditions, which may delay the completion of
power plants or substations, or natural disasters, accidents or other
unforeseen events; and the inability to obtain financing at rates that
are satisfactory to us.
o Political/Governmental Factors: political conditions in Latin America
and changes in Spanish, European and foreign laws, regulations and
taxes.
o Operating Factors: technical difficulties; changes in operating
conditions and costs; the ability to implement cost reduction plans;
the ability to maintain a stable supply of coal, fuel and gas and the
impact of fluctuations on fuel and gas prices; acquisitions or
restructurings; and the ability to implement an international and
diversification strategy successfully.
o Competitive Factors: the actions of competitors; changes in
competition and pricing environments; the entry of new competitors in
our markets.
Formal Notice
NEW YORK--(BUSINESS WIRE)--Oct. 6, 2005--
New York, October 5, 2005.- This is the translation of a document filed today by
Endesa (NYSE: ELE) with the Spanish Securities Exchange Commission (CNMV):
RELEVANT FACT: ADDITIONAL INFORMATION TO
ENDESA'S DOCUMENT "ENDESA: STRONGER BUSINESS, GREATER VALUE", REPORTED ON
OCTOBER 3rd 2005
REGULATORY ISSUES (1 OF 2):
On 25 February 2005 the Spanish Cabinet adopted a series of measures aimed at
boosting productivity. Deriving from this plan, the Royal Decree Law 5/2005 of
11 March on emergency productivity reforms introduced certain modifications to
the regulation of the energy sector. Among these were a change to the mechanism
for paying Competition Transition Costs (stranded costs also known as CTC) from
monthly to annual settlement. Collection of CTCs was therefore suspended until
the final preliminary settlement of each year is made except for 2004, for which
it was expressly stated that the annual settlement would not take place before
January 1, 2006. The monthly settlement, however, remained in place in the event
negative CTCs; i.e. the tariff showed a deficit. In this case, specific
percentages were established and applied to each company to fund the deficit
which differed from those stipulated in prior legislation.
Under this framework, the estimated deficit for 2005 based on the performance of
the generation pool would be Euro 3.5 billion.
At the same time the Cabinet approved a series of Mandates to encourage certain
reforms and initiatives including specific energy-related actions (e.g.
application of information from electricity distribution companies, tariff
structure, standardisation of reactive energy, etc.).
There is also the commitment of the regulators and the Ministry of Industry,
Tourism and Commerce itself to complete the development of certain regulatory
issues concerning regulated activities, which at present are still pending:
remuneration of the island and nonmainland electricity systems and of the
remuneration mechanism for distribution.
Based on the above, pursuant to the commitments made by all the utilities in the
protocol signed in 1996 and considering the recommendations made in the White
Paper on the reform of the electricity production market, Endesa understands
that the mechanism devised to balance wholesale market prices with costs should
be based on virtual contracts with a fixed price of Euros 36/MWh for hydro and
nuclear technologies.
The proposal of virtual contracts for hydro and nuclear generation would:
- -- reduce the current market power,
- -- eliminate the deficit arising from inefficiencies in the wholesale market,
and
- -- free up funds that could be used to increase the remuneration of regulated
activities.
REGULATORY ISSUES (2 OF 2):
Regulation: Current Situation
a. The removal of CTCs could produce an extra cost for consumers of Euro 7-9
billion from 2005 to 2010. Tariffs would have to be raised by 7-8% p.a. from
2006 to 2010
b. Regulated activities:
- -- Distribution: remuneration deficit compared with similar EU members.
- -- Commitment of the regulator to increase remuneration.
- -- Island generation: ministerial decree draft; orders already published are
being reviewed by the energy regulator, the CNE
5 Objectives
- -- A truly competitive market. Market power need to be reduced.
- -- Respect the "Regulatory Pact" between consumers and generators. The market
was deregulated in an attempt to achieve stable prices for both: Euro
36.06/MWh+CTC. Proposed solution: "virtual contracts" for hydro and nuclear
generation at Euro 36.06/MWh.
- -- Substitution of the current CTC mechanism. The settlement mechanism distorts
the market and produces imbalances among generators. Estimates for market
prices in coming years ensure the recovery of investments in assets subject
to recoup CTCs.
- -- Partial recognition of the 2005 tariff deficit. Around Euro 1.5 billion of
the potential Euro 3.5 billion deficit correspond to windfall profits
(hydro+nuclear), the costs of which have not risen.
- -- Appropriate remuneration of regulated activities.
EFFICIENCY IMPROVEMENT PLAN (1 of 3)
In March Endesa embarked on an efficiency improvement plan aimed at boosting the
operating results of its electricity business in Spain and Portugal.
The programme was based on a bottom-up perspective, seeking not only to increase
absolute earnings, but to address one of Endesa's core values; i.e. its
results-oriented management:
"Our activities are aimed at achieving the objectives of the business project
and profitability for our shareholders, endeavouring to exceed expectations".
Since the programme was launched more than 200 initiatives were proposed from
the different areas and levels within the organisation. The clustering and
selection process finished in June.
In sum, the programme conforms to 60 initiatives which affect the different
business lines and focuses on improving margins and reducing costs.
Each of these initiatives is set out according to:
- -- Person in charge
- -- Implementation calendar
- -- Areas involved
- -- Improvement results target
This programme is continually monitored, with monthly meetings held by the
management board, where the progress of the most relevant initiatives is
reviewed along with a quarterly report on the overall initiatives.
The global improvement objective has been set at Euro 320 million for 2009, with
the following intermediate stages:
- -- 2005 Euro 100 million
- -- 2006 Euro 200 million
- -- 2007 Euro 300 million
EFFICIENCY IMPROVEMENT PLAN (2 of 3)
In March an efficiency plan was put in place with a target of increasing
Operating Profit by Euro 320 million by 2009
Technical objectives: Identify and implement initiatives; i.e. process
reengineering, which by considering current framework can lead to sharp growth
in margins
Cultural objectives: Identify bottom-up initiatives
Guiding principles to ensure success:
- -- Set targets with strict and fair rules for all units
- -- Systematic bottom-up search for improvement opportunities, with the Area
Managers in charge of overseeing that the steps drawn up are implemented.
- -- Visibility and transparency of the programme (launch meetings, approval of
ideas reunions, &).
- -- Strict monitoring of implementation.
EFFICIENCY IMPROVEMENT PLAN (3 of 3)
MARGIN IMPROVEMENT: Euro 165 million
- -- Generation and Energy Management: Euro 90 million
-- Optimisation of fuels mix in fossil fuel power plants
-- Diversification of fuel suppliers
-- Improvements in yield at fossil fuel and hydro power plants
-- Optimisation of energy supply
- -- Distribution: Euro 30 million
-- Power capacity adequacy campaign
-- Reduction of fraud and network losses
-- Increase in related revenues
- -- Supply: Euro 45 million
-- Value Added Services expansion plan
-- Gas and electricity pricing policies
COST IMPROVEMENT: Euro 155 million
- -- Generation: Euro 65 million
-- Lean methodology for fossil fuel power plants
-- Operational improvements in hydro power plants
- -- Distribution: Euro 80 million
-- Whole resource optimisation plan: (i) review of business structure, and
(ii) plan for substituting subcontracted activities
-- Optimising reviews and repairs cost
-- Review of commercial system costs
-- Contracts
-- Reduction in general expenses
- -- Supply: Euro 10 million
-- Costs of commercial activities
-- Redesign and scope of advertising campaigns
For additional information please contact Alvaro Perez de Lema,
North America Investor Relations Office, telephone #
212 750 7200
http://www.endesa.es