EdF's lawyers are making a last-ditch attempt to convince the European Commission's merger taskforce not to refer the acquisition to a prolonged second-stage inquiry. If, as looks increasingly likely, the plea fails, this will present a serious setback to EdF's expansion plans in neighboring countries.
When Electricite de France (EdF) and Fiat formed Italenergia to bid for Montedison, one of Italy's largest diversified industrials, they must have expected resistance from the European Union's competition authorities. Certainly, this explains EdF's agreement to swap its existing 20% shareholding in Montedison for an 18% stake in Italenergia. While the swap firmly put EdF in the backseat of the joint venture, at least it pre-empted criticism over EdF's participation in the bid for Italy's second-largest electricity generator. Or so EdF thought.
Montedison, with an E14.3 billion turnover, is one of Italy's leading industrial groups. Its subsidiary Edison is Italy's second largest energy company, behind only Enel in electricity and Eni in gas. Its other energy subsidiary, Sondel, also has considerable generation capacity. By taking a substantial stake in those assets, EdF aims to be the main challenger to Enel and Eni's Italian dominance - especially as electricity EdF generates in France already accounts for one-third of Italy's electricity imports.
EdF has successfully entered several European energy markets, including the UK and Germany. However, its ambitions are increasingly causing a backlash from competitors and regulators, unhappy about what they see as the French company's 'easy ride' abroad when its domestic market remains largely closed to competition.
While the decision whether to launch an in-depth "second-phase" inquiry is due on August 28, the taskforce may extend this by two weeks to assess the measures Italenergia has proposed to mitigate the takeover's anticompetitive effects. However, the final decision may be about more than just the competitive implications in Italy. The first sign of an EU backlash was the reluctant approval given to EdF's acquisition of Germany's EnBW last year. In July this year, the Commission also launched an in-depth investigation into EnBW's bid for Spain's Hidrocantabrico.
Against this background, the difficulties surrounding Italenergia's bid for Montedison may well indicate the end of EdF's large-scale European expansion, at least until the French government bows to EU pressure and speeds up its own liberalization program.