Enel shares outperformed a falling European stock market on Monday on a report Germany's E.ON could buy shares in its Italian rival as a bargaining tool in their battle over Spanish power firm Endesa.
Enel threatened to spoil E.ON's 41 billion euro ($53.8 billion) bid for Endesa last week by buying or taking options to buy up to 22% of the Spanish company. The purchase would make Enel the biggest shareholder in Endesa.
German magazine Der Spiegel reported on Friday that E.ON could buy a stake in Enel as a countermove, following a suggestion from U.S. investment bank Goldman Sachs.
Asked if he was concerned about E.ON possibly buying Enel shares, Italian Prime Minister Romano Prodi said such a purchase was a market issue. Enel is 32% state owned.
Bucking a downturn in European stocks, Enel shares jumped more than 1% before paring gains. Enel was close to unchanged at 7.88 euros as the DJ Stoxx utilities index was 1.8% lower.
In Frankfurt, E.ON shares were down 1.7% at 94.81 euros, hitting a three-month low before trimming losses.
"I don't see (Enel) stake-building under way. It went up on this speculation but it seems tough to me for E.ON to be buying on the market," a Milan trader said.
Frankfurter Allgemeine Zeitung reported on Monday that E.ON's management board discussed the Enel plan and discarded it, while Goldman Sachs declined to comment. E.ON was not available to comment.
Enel's move into Endesa came a week after Prodi met his Spanish counterpart, raising accusations of political foul play.
In an interview with Spain's Expansion newspaper on Monday, Spanish Economy Minister Pedro Solbes said the government had no role in Enel's sudden swoop on Endesa.
Solbes is due to meet his Italian counterpart Tommaso Padoa-Schioppa in Madrid on Monday and Tuesday, the latest in a string of high-level meetings between the two countries.
Spain's opposition Partido Popular plans to lodge a case against the government with domestic stock market regulator CNMV on Monday, accusing it of collusion with Enel.
Enel's stake made E.ON's bid for Endesa appear "mortally wounded," Exane BNP Paribas said in a research report.
Enel's interests would not be helped by being a long-term minority shareholder in Endesa, it said. A solution would be for E.ON to sell Enel Endesa assets in exchange for selling its Endesa shares to E.ON.
Enel has bought a 9.99% holding in Endesa and has said it could reach 24.99%, just under a 25% threshold which under Spanish rules would trigger a full bid. It also has options for another 12%.
Enel paid an average of 39 euros for each Endesa share, above E.ON's bid of 38.75 euros.
Enel needs permission from Spain's energy commission to raise its direct holding above 10%.