Feb. 28 (Bloomberg) -- Enel SpA, Italy's biggest power company, may increase its stake in Endesa SA to almost 25 percent, threatening to end a yearlong takeover bid for the Spanish power company by E.ON AG.

The Italian utility yesterday bought almost 10 percent of Endesa for about 4.13 billion euros ($5.47 billion) and is considering raising the stake to as much as 24.99 percent, it said today in a statement distributed by the Italian stock exchange.

Enel together with Spanish investors Acciona SA and Caja Madrid would control more than half of Endesa's stock, enough to block E.ON's 41 billion-euro offer ending next month. Spain's government has fought to keep the utility in domestic hands and pitted itself against the European Union, which has tried to force open utility markets in the region.

``It looks like E.ON will probably have to pull out now,'' said Herbert Wertz, who helps manage the equivalent of about $85 billion at AMB Generali Asset Management in Cologne, including E.ON shares. ``It's just gotten very tight.''

Enel has no financial agreements to raise its stake further, it told regulators after the close of trading in Madrid. The Italian utility denied it is acting together with any other Endesa shareholder.

Dusseldorf, Germany-based E.ON will maintain its offer in the current form, it said today in a statement. Endesa's stock rose 0.9 percent to 38.45 euros, or 0.8 percent below E.ON's bid. E.ON fell 4 percent to 99.14 euros in Frankfurt. Enel dropped 2.6 percent to 7.907 euros in Milan.

Enel's Strategy

With the deal, Enel aims to become ``more important in Spain in the near future,'' Chief Executive Officer Fulvio Conti said today at a conference in Athens. The transaction, financed from cash flow and credit lines, is part of a European expansion plan,, Conti said. Enel has no plans to counter E.ON's bid, he said.

Enel said it acted without consulting other Endesa shareholders when it bought the stock in out-of-market transactions from institutional investors. Approval is needed from Spain's energy regulator raise its stake in Endesa beyond 10 percent.

Acciona, a Spanish builder and investor in wind-energy projects, owns about 21 percent of Endesa and opposes E.ON's bid. Acciona had no knowledge of Enel's stake purchase, said a spokeswoman for the Madrid-based construction company today who asked not to be identified. She reaffirmed Acciona will remain an Endesa shareholder if it can take part in managing the utility.

The builder likewise has said it may acquire as much as 24.99 percent, the maximum level before a buyer must make its bid to all Endesa shareholders.

Enel is now Endesa's second-largest shareholder, ahead of Spanish lender Caja Madrid, which owns 9.9 percent of the utility, according to filings.

Enel Disclosures Demanded

``The chances that E.ON fails and pulls out are increasing,'' said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion, which manages the equivalent of $9.4 billion.

Enel said it hasn't decided whether to support a request by Endesa's board that shareholders vote to lift anti-takeover measures at a March 20 meeting. Killing those measures needs the approval of 50 percent of shareholders and is a requirement of E.ON's bid.

Spain's energy regulator could limit Enel's voting rights in Endesa to 3 percent, because the Italian company already controls Electra de Viesgo SA.

Voting Limits

Spanish law limits the voting rights of investors in more than one of the nation's top five producers, called ``major operators,'' based on market share in the previous year. The report, which establishes companies' total production for last year, will be ready in a month, a spokesman for the National Energy Commission said in a phone interview today.

European utilities are buying rivals to gain customers and generating plants as Europe prepares to open to competition in July. Enel, which owns Spanish generator Viesgo, wants to boost sales outside Italy, where competition rules limit its growth.

Enel yesterday bought the 105.8 million shares in Endesa for 39 euros apiece. That is higher than the 38.75 euros a share E.ON is offering for Endesa. Ratings company Standard and Poor's said after the purchase it won't change Enel's debt ratings.

Endesa Break-Up?

Acciona and Enel may try to break up and share Endesa, allowing the construction company to meet its growth objectives in Spain and Enel to boost energy output, Alberto Gandolfi, an analyst at JPMorgan, said in a note to investors.

``Enel has exploited a window of opportunity opened by the Spanish government, which may prefer an Endesa breakup to E.ON's bid,'' wrote Gandolfi, who has an ``overweight'' rating on Enel stock.

Conti has earmarked as much as 15 billion euros for acquisitions and development of plants in areas such as Spain, France, Eastern Europe and the Americas, he said in an interview on Feb. 12. The company is able to raise debt to finance acquisitions, he said.

Enel last year abandoned a bid for Suez SA after the French government opposed the transaction. Suez is now seeking to merge with Gaz de France SA. Enel, attracted by Suez's presence across Europe and its mix of generation assets including nuclear power, had arranged credit lines to finance a 50 billion-euro bid for the French company.

To contact the reporters on this story: Anthony DiPaola in Rome at adipaola@bloomberg.net.; Kristian Rix in Madrid at krix@bloomberg.net.

Last Updated: February 28, 2007 12:53 EST