E.ON's plans to take control of Germany's biggest natural gas company for five and a half billion dollars will be rejected for a second time when the Monopoly Commission presents its decision, lawyers and analysts have said.
The commission, a panel of four professors and economists, aims to present its report on Tuesday, said the general secretary Horst Greiffenberg. The German government, which has the final say, will use the findings as a guide for its decision.
“It's an open secret the Monopoly Commission will publish a negative report,” said Ines Zenke, a lawyer hired by Fortum, Finland's largest power company, to campaign against the transaction. “Anything different would come as a surprise.”
E.ON, Germany's biggest utility, asked the German government to back the acquisition after it was rejected by the antitrust authority in January. At stake is control of a company with sixty percent of Germany's twenty billion dollar natural gas market.
The closely held Ruhrgas, which controls thirteen percent of the $75 billion European market, is the biggest importer of Russian gas into Western Europe, distributing the fuel along a 10,638 kilometer pipeline.
The Dusseldorf, Germany based E.ON is prepared for a rejection by the Monopoly Commission and still expects the government to support the acquisition, Chief Financial Officer Erhard Schipporeit said on a conference call with analysts last Thursday.
Under German law, the Economics Minister can personally authorize a merger previously rejected by the Federal Cartel Office and the commission, if the minister considers advantages to the economy as a whole overshadow antitrust concerns. E.ON is the seventeenth company since World War II to apply to the Economics Ministry to overturn a decision by the country's antitrust authority. E.ON predecessor Veba won such a ruling in 1974, when the government tried to reduce Germany's reliance on energy imports during a surge in oil prices.
“Germany missed the boat to create an oil major in the seventies,” said Philippe Vandeurzen, an analyst at Fortis Bank in Belgium, “It is unlikely that it will not take the opportunity now to create a European energy major.”
In ten out of sixteen cases, the commission advised the government not to approve the takeovers. Of those, three were overruled by the government. In three cases, the companies withdrew the appeals and in three cases the commission supported the plans.
The Economics Ministry scheduled an oral hearing for May 29th. Economics Minister Werner Mueller, who used to work for Veba, has asked deputy Alfred Tacke to make a decision to avoid a conflict of interest.
Government approval is unlikely to go through without concessions, analysts said. E.ON may have to reduce or sell its stakes in other gas companies, as it already holds thirty eight percent of the German market for end customers through subsidiaries that include Thuega and Hein Gas. Thuega, a regional gas supplier, owns stakes in a hundred and twenty gas utilities.
Companies including RWE and Fortum commissioned reports from university professors and law firms, in a bid to strengthen their case against E.ON's plans.
The commission itself in April requested a separate report from Wuppertal Institut, a German environmental and energy institute, to assess the effects the merger would have on the German market.
The report concludes that the merger would crimp the “technological variety” on the German energy market and have a “disabling” effect particularly on smaller companies.
The Wuppertal report is one of “at least” six reports the commission has received from companies and law firms, including E.ON and RWE, Greiffenberg said.
The Monopoly Commission's report will be published on its Web site: http://www.monopolkommission.de. No press conference is scheduled, Greiffenberg said.