KUHN CAPITAL Saturday, February 24, 2018
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EU Energy Deals Amaze, Amuse


European deregulation, backed by the EU, is unleashing a wave of consolidation among energy generators and distributors. In 2005, nearly $200 billion changed hands in 527 energy industry M&A deals.

The situation is interesting for several reasons. First, should American regulators ever permit energy consumer free choice here, we can expect to see a similar vigorous drive toward efficiency through consolidation. As in Europe, the US energy landscape is littered with duplicative and underperforming operators.

Second, European consolidation is producing entertaining side-effects. The governments of Germany, France and Spain are pleased to back their own utilities as they may attempt to acquire those based elsewhere. But not the reverse.

For instance, when Italy's Enel launched a hostile bid for Franceís Suez, Franceís PM Dominique de Villepin rushed to force a marriage between Suez and Gaz de France. He claimed to a skeptical EU that the French-on-French match had been in the works for months and -- at any rate -- combining Suez and Gaz de France was appropriate given his country's commitment to "economic patriotism."

Italy is petitioning the EU to allow Enel to proceed. And Germany's giant E.ON wants to buy Spain's Endesa. Spain is of course resisting.

So what we have here is a conflict between the EUís free market drive and the national agendas of protectionist countries. Itís amusing because France, in particular, has brought this quandary upon itself: after years of promoting EU power as a vehicle for its own ambitions, now the country is surprised to find that -- once again -- free markets donít mix well with command-and-control politics.

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