Jeremy Warner's Outlook: E.ON seems set on a scattergun approach to expansion as it targets Spain's Endesa

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The Independent Online

There will only be three, Wulf Bernotat, chairman of E.ON, said, Highlander-like, in a recent interview that appeared deliberately to defy criticisms from the European Commission that the Continental power market is already unduly concentrated in the hands of too small a number of vertically integrated energy giants.

To the contrary, Mr Bernotat insisted, the market isn't concentrated enough, and he predicted further consolidation to leave just three dominant groups across Europe. He plainly meant it, for having failed with Scottish Power, he seems now to be adopting a scattergun approach, where he bids for everything in sight.

Today Endesa, tomorrow, who knows, perhaps Electricité de France? Only, of course, it wouldn't be possible to buy Electricité de France. Like Germany, the French energy market is essentially closed to foreign participation. This lack of competition has allowed dominant indigenous suppliers to grow fat at their customers' expense, and given them a blank cheque to go shopping with in the rest of Europe.

It's no accident that they should choose Britain and Spain, for these are markets where it is indeed possible to buy. It's also small wonder that Spanish government officials were yesterday expressing serious concern. It's important, the government said, that Spain retained a strong national company in a sector as strategically important as energy.

The implicit threat was that the Spanish government would use its golden share in Endesa to block the takeover if necessary, never mind the hypocrisy of defending Spanish corporate interests from the invading hordes while cheering on Telefonica and Ferrovial with tax breaks and goodness knows what else in their assault on corporate Britain.

The Spanish government has already over-ruled its own competition authorities in throwing its weight behind an alternative division of Endesa assets between the rival Spanish power firms, Gas Natural and Iberdrola. E.ON's intervention is the last thing ministers wanted to see, the more so as this is a takeover Brussels would be hard pressed to block. On the face of it, there are no competition issues involved here.

Neelie Kroes, the European Competition Commissioner, will be sympathetic to the argument that the playing field is strongly tipped in E.ON's favour, yet it seems questionable she could use this as a pretext for blocking the takeover, or even for extracting concessions from E.ON to open up the German market.

By any standards this is a massive bid. With a total enterprise value of €55bn, the all-cash offer of €27.5 a share blows the rival Gas Natural bid out of the water. At such a heady valuation, E.ON is almost certainly overpaying in its quest for empire. This will make the Spanish doubly anxious. What will such high leverage do to infrastructure investment, or indeed to tariffs?

As the number of and appetite for cross-borders transactions grow, national sensitivities are ever more of an issue. Even in Britain, with her open borders, there is concern over the recent rash of foreign takeovers. Cheap prices and liberalised markets make Britain particularly vulnerable to foreign huntsmen.

The Government still regards this open door approach to inward investment as largely a good thing, yet the philosophy is being sorely tested as one after another of our major British companies fall to foreign grape shot. Abbey National, O2 and P&O are one thing, but when it comes to strategically important national assets such as the airports owned by BAA, will ministers remain quite so sanguine?

It's a funny old world which has Dubai Ports approved in Brussels to acquire P&O, a company based in Britain, only to fall foul of security concerns in the US.

Even more bizarre is the spectacle of President Jacques Chirac assuring the Indian government that there is nothing anti-Indian in France's opposition to Mittal Steel's bid for Arcelor. How could there be, he was quoted as saying, when Lakshmi Mittal, the chairman, is a British passport holder? What did he mean? That there would have been no objection at all had not Mr Mittal been a Brit?

What we are seeing with such interventions is in many respects the dying gasps of the old order - an increasingly irrelevant attempt to exert national influence in a commercial world which is becoming ever more global in its outlook.

Yet as long as national boundaries to free and open competition exist, there will always be legitimate national concern about cross-border takeovers. E.ON's bid for Endesa has few obvious implications for Britain. On the other hand, it does highlight the issue of whether it is strictly fair for corporate empire builders grown fat on national monopoly to exploit the freedoms of our more liberalised markets, a concern which finds powerful immediacy in our exposure to artificially high European gas prices.

If the system works as it is supposed to, it ought to be those of us who live in these happy hunting grounds that have the last laugh, as in the scramble for assets, empire builders invariably overpay and end up losing their shirts.

Yet the dynamic that causes capital to flow from protected to unprotected markets is in the meantime capable of doing an awful lot of damage to the established corporate fabric of these regions. With the playing field so severely tipped towards the ludicrous pretensions of Mr Bernotat and his like, it's hardly surprising that the politicians get so upset.

Barclays: time to back Varley's vision

It's all a bit depressing for John Varley, chief executive of Barclays. True enough, the shares went up a few coppers yesterday to close to an all-time high in response to figures a little better than expected, yet against American and European peers, the rating remains strangely subdued.

There are a number of decent enough reasons for this. Bad debt experience is growing in an economy which has for too long been sustained by excessive levels of consumer spending, while in mortgages, Barclays' experience with the Woolwich has been little short of disastrous. Yet these negatives are more than outweighed by the positives.

Performance at Barclays Capital is still sensational and even the UK retail bank managed respectable growth in a difficult market. International growth meanwhile continues apace, making it highly likely that Mr Varley will attain his target of more than 50 per cent of profits coming from overseas within three years without the need for further acquisitions.

This is perhaps just as well, for the investment climate in the UK seems as acquisition averse as ever. Even the acquisition-addicted Sir Fred Goodwin atRoyal Bank of Scotland has been forced to rein in his ambitions and promise boring old buy-backs instead.

While overseas banks find their takeover pretensions cheered on from the sidelines, and are given a premium rating for their trouble, British banks remain firmly stuck in discount territory. Lloyds TSB, once the biggest bank in Europe by market capitalisation, is today regarded as little more than a takeover target. The way things are going, the same may soon be true of others.

This is partly a problem for the UK stock market as a whole, which growing Government taxation and regulation has caused seriously to slip behind America and even Europe in terms of the valuation placed on its leading companies. Yet it is a particular problem with the banking sector, an industry in which Britain once led the world.

Leading investors tell me that the climate is changing - that there is now more of a willingness to back well thought out, long-term investment and less of an appetite for capital return, to be recycled with the collective stupidity of lemmings into unproductive government bonds.

I hope they are right. If they don't start backing the judgement of their chief executives soon, there will be no UK companies left to invest in. Too much of our publicly quoted sector is today in the hands of short-term traders, not enough with long-term owners. Regrettably, the Government shows little sign of wanting to redress the balance.

j.warner@independent.co.uk

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