Oct. 17, 2000—Spain’s Endesa SA and Iberdrola SA reported Tuesday they have reached an agreed to merge, creating the world’s largest electricity utility in number of customers, the fifth largest based on enterprise value, and fourth largest in terms of installed capacity.

The combined company will be named Endesa Iberdrola SA and will headquartered in Madrid.

Under the agreement, Iberdrola shareholders will receive 18 Endesa shares for every 23 Iberdrola shares, plus 25 pesetas for every lot of 23 shares. Its market capitalization, based on Monday’s market price is about 36.58 billion euros.

Under the agreement, which is subject to regulatory, board, and shareholder approval, the companies will dispose of 15,000 Mw of generating capacity worth more than 500 million euros through sales, asset swaps, or other formulas, as well as distribution franchises of around 25,000 gw-hr/year.

The new company will also limit its operations in Spain. Executives of the two companies said the decision is intended to contribute to the opening of the domestic electricity market to competition by permitting the entry of at least three new operators.

The companies said the proposed transaction is a response to the challenges created by global deregulation, competition, and consolidation in the industry.

“With this decision, which responds to a deep industrial logic, we start the process for the creation of a Spanish-based company that aspires to become one of the global operators of the electricity and related services,” said Rodolfo Martin Villa, Endesa chairman.

Endesa and Iberdrola executives said the transaction will allow the combined company to boost its presence in Europe and North American electricity markets, and build investments in telecommunications and new technologies, reducing exposure to regulatory risks.

The combination will make the resulting company Latin America’s largest electricity utility with a 12% market share. It will have installed capacity of 13,887 Mw, which in 1999 produced 41,559 gw-hr, and a customer base of 18.4 million in Chile, Argentina, Peru, Brazil, and Mexico.

On the basis of the consolidated financial statements of both companies as of Dec. 31, 1999, the company resulting from the merger will have assets of 67.92 billion euros , debt of 27.76 billion euros, revenues of 19.90Ibillion euros, and earnings before interest and taxes of about 6.6 billion euros.

Executives said in the medium term the new company expects installed capacity to grow to 75,000 Mw from 38,617 Mw and the number of customers to rise 40 million. The new company has set a goal of having 30% of its value invested in telecommunications and increasing the number of clients to 12 million, executives said. I

The companies said the board of directors will be made up of 30 members, of whom 18 will be appointed by Endesa and 12 by Iberdrola. Rodolfo Martin Villa and Inigo de Oriol e Ybarra will be named cochairmenI and Rafael Miranda Robredo will be named chief executive officer.