Iberdrola, RWE held abortive merger talks

Germany's RWE and Iberdrola came close to announcing a 60 billion-euro ($87 billion) combination in February but the Spanish utility pulled out of talks, sources familiar with the matter said. The talks between Europe's fifth- and sixth-largest utilities were abandoned just before the companies planned to announce them, two of the sources, who are close to the companies, told Reuters.
"The talks were serious and rather advanced," said a person from the finance industry with knowledge of the talks. "But Iberdrola dropped out of the talks as it would have obtained only a rather small advantage for the price of getting together with a company in a difficult business situation," the person added.
Legal and shareholder issues remained unresolved, including whether local communities in western Germany, which together hold a blocking minority of just over 25 percent in RWE, could be persuaded to accept a deal, said two people. Officials at Iberdrola and RWE both declined to comment. Iberdrola's chief executive, Ignacio Sanchez Galan, on Wednesday ruled out acquisitions in the short term.
"They are in a tricky position and they don't rule out anything," said a London-based analyst, who declined to be identified in line with the policy of his bank. "I don't see them as putting themselves up for sale, but if there is a partner who has a lot to offer (they would probably say) - why not?" said the analyst. RWE shares rose as much as 0.4 percent to 43.70 euros, while Iberdrola stock dropped as much as 0.8 percent to 6.19 euros.
The Spanish utility, based in Bilbao in the Basque country, is seeking to prevent 20 percent shareholder ACS from increasing its control. A combination with RWE could have reduced the ACS stake by half, said one source. ACS declined to comment on the Reuters report on Friday.
But a deal with RWE would mean joining forces with a company that faces three years of falling profits and that - according to unconfirmed reports - has already held talks with Czech utility CEZ and French power company EDF. "A merger with RWE might be interesting, given the multiples, but it would probably imply a capital hike and I think the market would read this negatively," Mirabaud utility analyst Isidoro del Alamo said.