1. Gas Natural’s unsuccessful bid for Iberdrola © Utility Consultants Ltd 2003 Prepared by Utility Consultants Ltd www.utilityconsultants.co.nz

2. Disclaimer

3. This research report is of a general nature, and is not intended as specific professional advice. Accordingly, neither Utility Consultants, nor its’ directors and shareholders, shall be liable for any loss or damage arising from action or inaction based on this research report.

4. Contents

5. Disclaimer Contents Introduction Overview of the deal Contact us Feedback Regulatory & compliance issues Comparison with the Ruhrgas acquisition

6. Introduction

7. In March 2003, Gas Natural SDGGas Natural SDG unveiled an unsolicited cash & shares bid for 100% of the share capital of Iberdrola SAIberdrola SA This would have created the 3 rd largest utility in Europe and the 5 th largest globally, with a market capitalisation of €20b Gas Natural’s offer comprised €6.8 cash plus 0.58 Gas Natural shares for each Iberdrola share valuing the consideration at €17.01 per Iberdrola share, or €15.32b in total This report examines the proposed deal in detail, including the CNE’s rejection ofCNE’s the deal, and a comparison with E.On’sE.On’s acquisition of RuhrgasRuhrgas

8. Overview of the deal

9. Introduction Gas Natural Iberdrola The proposed deal Iberdrola’s attractiveness Gas Natural’s strategy

10. Gas Natural Multi-national energy services group focusing on Spain and LatAm Business focused on natural gas, with over 8 million customers Strategy involves growing electricity market share Annual revenue of €5.3b, nett profit of €806m Key shareholders are La Caixa (26%) and Repsol (24%)Repsol

11. Iberdrola EU’s 7th largest electricity company with annual sales of 183,000 GWh Activities in Spain, Mexico and LatAm Listed on the Madrid Stock Exchange Growth strategy focused on the Spanish market Also focused on growing gas market share

12. The proposed deal Modeled on E.On’sE.On’s bid for RuhrgasRuhrgas Based on cash and shares, initially valuing Iberdrola at €17.01 per share Gas Natural would have owned 46% of the new company Proposed funding by divestments and issue of new shares Lacked support from Iberdrola’s board and Gas Natural’s owner

13. Iberdrola’s attractiveness Considered a better investment than rivals Endesa andEndesa Union Fenosa 95% of earnings come from the rapidly growing Spanish market Modest debt levels Low exposure to volatile LatAm markets

14. Gas Natural’s strategy Already entered electricity market Forward integration strategy involving gas-fired plant Increase electricity customer base to 11 million Obtain a 10% share of the generation market Boost multi- product offerings Acquiring Iberdrola would have been a perfect fit with this strategy

15. Regulatory & compliance issues

16. Regulatory & compliance issues Compliance with stock market listing requirements Compliance with general competition law Compliance with government energy policy All these requirements were met

17. Compliance with general competition law Prohibits acquisition of a dominant position Administered by the CNMVCNMV First requirement was to submit a detailed plan within 5 days Gas Natural intended to make €5b of divestments to comply Proposed gas divestments were thought to be insufficient

18. Compliance with government energy policy Overseen by the CNE Both Iberdrola and Gas Natural had committed to huge investments CNE was concerned that this investment could be reduced Thought to be the basis of the CNE’s rejection of the bid CNE also has strong Influence with the Economics Ministry

19. Comparison with the Ruhrgas acquisition

20. E.On’s recent acquisition of Ruhrgas has formed an industry benchmark, and it is likely that future deals will be compared to this acquisition Perhaps what makes such comparison even more valid is that Gas Natural modeled their bid on the Ruhrgas acquisition This section outlines some of the key similarities and differences of the two bids Pick here to download a report on the Ruhrgas acquisition

21. Similarities to the Ruhrgas acquisition Very good fit with chosen strategy Significant concessions were required Government interest in ensuring future investment Would have significantly re- shaped the EU energy industry Both targeted markets with strong growth prospects

22. Differences from the Ruhrgas acquisition Deal was for cash and shares, not just cash Consideration was variable (depended on Gas Natural’s stock price) Issue of future investment levels worked against Gas Natural Spanish regulatory environment is much tougher than Germany Gas Natural needed to raise funds, while E.On already had ready cash

23. Feedback

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25. Contact us

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