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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 November 9th , 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.
ENDESA WILL APPEAL TO THE MINISTER FOR INDUSTRY
AGAINST THE NATIONAL ENERGY COMMISSION'S (CNE)
DECISION REGARDING GAS NATURAL'S BID
o ENDESA will lodge a formal complaint with the competent European
authorities in the coming days.
New York, 9 November 2005.- ENDESA (NYSE: ELE) will lodge an appeal tomorrow
with the Industry Minister directly citing the CNE, contesting the two decisions
adopted yesterday, Tuesday 8 November, by five of the nine CNE members
concerning i) the transfer of gas distribution installations from Gas Natural
SDG to two subsidiaries and ii) Gas Natural's hostile bid for ENDESA.
ENDESA considers that the CNE's decisions are distinctly inconsistent with
previous decisions made by that regulatory body in similar cases. ENDESA also
believes that the decisions suggest that regulated activities can be used to
finance operations that go against the public interest, and that the decisions
impose conditions that do not go no further than the strict legal minimum
requirements.
ENDESA also believes that the procedure followed by the CNE was patently
unorthodox in denying ENDESA access to the bulk of the existing documentation,
preventing ENDESA from practicing a petition of proof and awarding ENDESA the
minimum legal timeframe to launch an appeal against its decisions.
In this latter respect, we note that only a few hours before the appeal
timeframe conceded to ENDESA expired, the CNE approved a resolution proposal of
roughly two hundred pages, which suggests that the final resolution had already
been decided upon.
Separation of Gas Natural's regulated activities
The first of the two decisions taken by the CNE authorises Gas Natural to create
two subsidiaries destined to takeover the regulated activities of natural gas
transport and distribution that have until now been controlled by the mother
company.
The CNE's decision is very surprising indeed, especially as the regulatory body
now admits the creation of companies founded more than a year ago and a transfer
of activities that Gas Natural has already carried out, despite the fact that
authorisation should have been obtained before such a transfer was made.
Moreover, the authorisation, that was adopted without any explanation of its
technical and /or economic rationale, allows and approves the transfer of more
than three billion euros of regulated income to other types of activities -
essentially the financing of Gas Natural's takeover bid.
This transfer - authorised by the CNE - is a direct negation of the public
interest, particularly in respect of the gas markets in Madrid and Catalonia,
and it completely ignores the authorities of these autonomous regions.
Authorisation conditioned by the take-over bid
The second decision adopted by five of the nine CNE board members yesterday
authorises the take-over of ENDESA by Gas Natural, subject to conditions.
Examination of the resolution reveals that the CNE adopted the resolution on the
basis of data put forward by Gas Natural, the bulk of which it describes as
"prudent". In this heedless way, the CNE has given the green light to an
operation that will affect 52% of the regulated income of the gas and
electricity sectors based on data provided - in the main - by only one of the
parties involved.
In addition, the document signed by the CNE asserts that the majority of the
arguments are completely "generic", such that the resolution, or any other
resolution, could have been adopted without any necessity whatsoever of
examining or assessing the risks or negative effects highlighted by ENDESA.
Below we enumerate ENDESA's main arguments against the CNE ruling:
o The ruling clearly differs from precedents set by the regulatory body
itself. This lack of consistency is all the more surprising if
considering that:
o The precedents are relatively recent (2001 and 2003).
o Case history relates to the same sector and markets as the
Gas Natural - Endesa bid.
o The earlier instances relate to the same companies.
o These previous cases generated the same issues and
uncertainties as the Gas Natural bid for ENDESA in terms of
the so-called 14th Function: financial viability of the
transaction, potential for conflict between regulated and
unregulated businesses, etc.
Therefore it is surprising that the same regulatory authority should
take contradictory decisions within such as short timeframe in respect
od similar operations taking place in the same sector and affecting
the same companies.
o This contradiction generates serious uncertainty surrounding the rules
of the game governing this and other potential corporate mergers since
it gives the impression that the body of decisions taken by the
regulatory organism do not constitute a reliable and useful precedent.
It also suggests that that decision-making process is subject to other
variable factors or criteria, undermining the credibility of the
regulatory framework, of legal protection and of the sector players'
legitimate confidence.
o It is surprising that the conditions on the takeover bid are
restricted to the minimal legal requirements: information disclosure
obligations, investment in transmission assets, etc.
o The conditions imposed clearly allow the regulated businesses to
finance the debt taken on to fund the acquisition. They essentially
mean that the customers will pay the price of the deal, resulting in
an inevitable upward pressure on tariffs.
o Some of the conditions confirm that the deal poses serious uncertainty
for ENDESA shareholders, as they significantly limit the newco's
ability, if the deal goes ahead, to pay dividends in the future,
calling into question the commitment made publicly by Gas Natural to
the market just a few short weeks ago to pay out Euro 5 billion in
dividends through 2009.
o In terms of the newco's financial situation, should the deal go ahead,
the CNE's ruling quotes word for word that "Gas Natural has requested
Standard & Poor's to determine what credit rating it would apply to
the newco in the wake of the transaction. To this end, Standard &
Poor's unofficially indicated to Gas Natural that the newco's rating
would be between a single A and A-. Both group's current financial
strength and solvency would therefore remain intact although at the
low end of the range should the final outcome be an A- rating". It is
astonishing that the CNE should base its judgment on something as
essential as the newco's financial strength on undocumented statements
made by the company promoting the takeover in question, which is in
turn based on unofficial information attributed to a ratings agency.
o Regarding the transaction the CNE ruling actually states that "it is
possible that the transaction timeline will not coincide with the
previously outlined regulatory reforms. On the other hand, the fact
that the Commission is not in a position to guarantee the completion
of the new regulation in the short term, this cannot and should not be
a reason to rule against the deal". This statement by the CNE means
that the takeover bid will determine the course of the future
regulatory framework.
o Finally, we find the 10th condition particularly serious, since it
leaves the exercise of the so-called 14th Function in the hands of the
CNE in the event that Gas Natural modifies the terms of its bid. The
regulatory framework is very clear on this issue setting forth exactly
when an approval of this nature can be requested. In no instance can a
decision of this nature by taken by the CNE itself.
o The CNE ruling does not provide for efficient mechanisms to ensure
compliance with the conditions imposed, which are woefully
insufficient in light of the potential damage and risks posed to the
regulated businesses and, accordingly, to the interests of both
shareholders and customers.
o In any event, the conditions imposed by the CNE, despite their
limitations and lack of thoroughness, introduce an element of
uncertainty to the deal which is incompatible with guaranteeing
protection of shareholder rights and complying with applicable
securities markets legislation.
ENDESA to appeal the CNE rulings
Tomorrow, 10 November 2005, ENDESA's legal services will appeal the above
rulings before the Minister for Industry, Commerce and Tourism.
ENDESA trusts that, given the importance of the decisions in question, the
government will rule on the appeal in an expeditious manner, without applying
the period of administrative silence provided for.
In addition, ENDESA will lodge a formal complaint with the competent European
authorities in the coming days.