updated 2/21/2006 8:38:51 AM ET 2006-02-21T13:38:51

German utility E.On AG launched a surprise $34.72 billion (29.1 billion euro) bid Tuesday for Spain’s Endesa SA, coming in above an existing offer from Spain’s Gas Natural and threatening to disrupt carefully laid plans for Spanish power market consolidation.

E.On offered $32.81 (27.50 euros) per share in cash, saying the combination would create the world’s leading power and gas company that would serve more than 50 million customers in more than 30 countries.

The bid threatens the hostile offer on the table since September by Spain’s Gas Natural SDG SA, which values Endesa at about $25.33 (21.20 euros) per share in its $26.3 billion (22 billion euro) offer. The Gas Natural bid received government backing and would create a national champion in the power sector.

Endesa has said Gas Natural’s offer undervalued the company, and Gas Natural has also faced fierce legal, political, and antitrust challenges.

Earlier this month, Endesa’s Chairman Manuel Pizarro said Gas Natural should increase its offer by at least 25 percent if Endesa shareholders are to consider acceptance.

Spanish radio station Cadena Ser’s Web site said the E.On bid would be regarded as “not hostile” by Endesa.

Endesa shares shot up 7.9 percent to $32.80 (27.49 euros) when trading resumed at midmorning Tuesday. Spain’s stock market regulator had suspended trading before the market opening, after E.On launched its bid. They had closed Monday at $30.40 (25.48 euros).

E.On shares opened down but quickly recovered, rising 2.1 percent to $113.88 (95.44 euros) in Frankfurt. Gas Natural shares fell 1.3 percent to $28.68 (24.04 euros) in Madrid.

According to E.On, the offer is subject to it acquiring at least 50.01 percent of Endesa’s capital stock and shareholders must also approve several changes regarding management and voting prerequisites.

E.On currently has more than 30 million customers in more than 20 European countries and the United States.

The total transaction volume of its offer comes to approximately $65.86 billion (55.2 billion euros) including debt, provisions, and minority interests of about $31.14 billion (26.1 billion euros).

In the E.On deal, if Endesa shareholders are paid a dividend before the transaction is complete, the offer price will be reduced by the amount of the per-share dividend, E.On said.

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