A combined company would create a colossus, producing 80% of Spain's electrical needs. While it would rule the domestic scene and benefit significantly from complementary assets in Latin America, the merger will not get past the monopoly regulators without a large sell-off.
The Spanish electricity market is opening to competition extremely rapidly. Over 50% of the supply market is already open and local companies find themselves taking new measures in order to gain competitive advantage.
A merger between Endesa and Iberdrola would create one of the world's premier players in the competitive electricity market. Their combined generation assets amount to an installed capacity of over 50,000MW and sales of 200,000GWh in 1999.
Naturally, the new company would effectively rule the roost at home, where it would be responsible for over 80% of generation, and look threatening on the European scene. A merger would also favor the companies' Latin American assets. Both companies have invested strongly in this region and the combination of assets here would be relatively complementary since Iberdrola is particularly strong in the Brazilian market, while Endesa has the lion's share elsewhere.
Any possible deal would face severe regulatory issues, however. In May, the Spanish government vetoed Union Fenosa's acquisition of rival Hidroelectrica del Cantabrico. With such a high profile merger, regulators would undoubtedly demand a large asset sell-off to prevent accusations of a new monopoly being formed.