Spanish power utility Endesa SA yesterday rejected an unsolicited $28.22 billion bid from Gas Natural SDG SA, a smaller natural gas company, setting the stage for a takeover battle.

Endesa's board advised its shareholders not to accept the Gas Natural offer, calling it "hostile" and saying the price "does not reflect the real value of the company."

Gas Natural chief executive Rafael Villaseca shrugged off Endesa's negative response to the bid. "In any event, it will be up to the shareholders to decide, and business logic will end up prevailing," he said in a phone interview.

Last month, France's Suez SA moved to acquire the 49.9 percent of Belgian power utility Electrabel SA it doesn't own. Monday, Germany's E.On AG said it was considering bidding for ScottishPower PLC, Great Britain's fifth-largest power producer. France is preparing to sell shares in its former power monopoly, Electricite de France SA, to public investors this fall, after the initial public offering of natural gas provider Gaz de France SA this summer.

The activity is encouraged by both the European Union-mandated liberalization of the continent's energy markets and volatile commodity prices, industry executives and analysts said.

The E.U. has begun opening its power and gas markets to competition in phases, first to corporate and then residential clients. E.U. members must open their power markets fully by July 2007 and their natural gas markets by the end of 2008. As those deadlines approach, European energy utilities are seeking to become bigger, establish a pan-European presence and build a more balanced energy-generation portfolio.

In the past year, they also have contended with record prices for oil and natural gas, driving up the cost of producing electricity.

Those factors have pushed some companies to seek control of their supplies of raw materials -- a main rationale for Gas Natural's bid. Gas Natural hopes to use its plentiful supply of natural gas to power Endesa's gas-fired turbines, which produce cheaper and cleaner electricity than older, coal-fired plants.

Gas Natural argued yesterday that its deal would spur competition to the benefit of consumers in Spain while creating a strong "national champion" able to compete with other big European energy companies.

"The only possible solution" to growing energy demand in Europe is "more gas-fired plants," Villaseca said. "And that means utilities have to have a flexible and available supply of natural gas."