If successful, the deal would be the world's largest-ever takeover of a utility company, creating a combined group with 50 million customers in more than 30 countries and sales of €70bn. Including debt, it values Endesa at €55bn.
E.ON's unexpected bid for Endesa puts paid to any lingering hopes that it would expand its presence in the UK, where it owns Powergen, by coming back with a renewed offer for Scottish Power. The offer for Endesa also trumps a contested €22bn bid for the company from Spain's monopoly gas supplier Gas Natural and sets the scene for a fierce industrial and political struggle for control of the country's energy market.
It came as Enel, the former Italian electricity monopoly, confirmed it was seeking to buy into Belgium's Electrobel.
The surge of merger activity across the sector follows last week's warning from the European Competition Commissioner Neelie Kroes, that Brussels is preparing to take antitrust action against a number of big energy companies on the Continent in an effort to break their dominance of national markets.
After an emergency meeting, the Endesa board issued a statement last night giving a guarded welcome to some aspects of E.ON's bid but saying it still did not "adequately reflect the real value of Endesa".
The Spanish government, which has waved through the proposed Gas Natural/Endesa merger in defiance of the country's competition authorities, sounded a more menacing note. Spain's communications minister, Fernando Moraleda, said that in strategic sectors such as energy, decision-making should remain in Spanish hands.
Responsibility for vetting the merger on competition grounds will fall to the European Commission and although E.ON said it did not foresee any problems, other sources suggested Brussels would use the opportunity to force Germany to liberalise its heavily protected energy markets.
E.ON first approached Endesa in December, shortly after the German company had pulled out of bidding for Scottish Power because the two sides could not reach agreement on price. Speaking at a press conference in Madrid to launch the offer, E.ON's chief executive, Wulf Bernotat, said although the bid lacked a recommendation from the Endesa board, it was not hostile. Referring to the discussions which have already taken place between the two companies, he said: "The atmosphere was friendly, therefore we expect that the reaction from the Endesa management will also be a friendly one."
E.ON's cash bid is at a 30 per cent premium to the cash and shares offer tabled last September from Gas Natural which has been fought tooth and nail by the Endesa board. Were Gas Natural to succeed in creating a Spanish national champion in energy, then it would sell off Endesa's European operations outside Spain to the No 3 player in the Spanish electricity market, Iberdrola. If E.ON is successful, it would get access not only to Spain but also Latin America, where Endesa has 11 million customers and is a leading player in Chile's energy market.
The German company has pledged to keep Endesa's headquarters in Madrid, which would become the hub for E.ON's Southern European and Latin American division. It has promised there will be no job losses among the Endesa workforce.
The cash-rich E.ON is the world's biggest gas and power company, with operations in 20 European countries. Endesa is Spain's biggest energy firm with 11 million electricity customers and 550,000 gas customers.
E.ON said the bid met its strict financial criteria of being earnings-enhancing in the first full year after completion.