Spain's Grupo March, the main shareholder in Spanish construction firm ACS, said yesterday it backed a merger of power company Union Fenosa and Iberdrola - the utility that has made a £12bn offer for Glasgow-based ScottishPower.

"We would like an eventual merger between Fenosa and Iberdrola," said Carlos March, chairman of Banca March and co-chairman of Alba, which owns about 20% of ACS (Actividades de Construccion y Servicios).

ACS has a 10% holding in Bilbao-based Iberdrola and is also the largest holder in Union Fenosa, a rival Spanish utility.

Speculation swirled around Madrid's financial district last September that ACS wanted Union Fenosa and Iberdrola to merge to create a national champion in the energy sector.

However, Iberdrola spokesman Jose Luis Gonzalez-Besada and Fenosa's spokesman would neither confirm nor deny that a plan exists to try to combine the utilities.

ACS chairman Florentino Perez for months has sought to transform Union Fenosa, which has expanded into natural gas supply to feed its power plants and sell in international markets. Fenosa's half-owned Damietta terminal in Egypt is the biggest single LNG liquefaction plant in the world, with annual output capacity of five million tons.

March's comments came a few weeks after predictions by Spanish financial analysts of further mergers in the energy sector following the recent tie-up between Endesa, Spain's biggest electricity producer, and E.ON, the large German utility.

European utility mergers are accelerating as companies seek to gain clients and power plants before markets open up to greater competition from July.

"With the Endesa deal done, investors are looking for the next merger, and Iber- drola is the best candidate," said Victor Peiro, an analyst at the brokerage Caja Madrid. "Rumours of industry consolidation are rife and Iberdrola is a very attractive investment possibility."

Iberdrola chairman Ignacio Sanchez Galan has doubled net profit in five years as he invested e12.4bn (£8.3bn) in gas-fed power plants in Spain and Latin America, and in wind-energy parks in Europe, the United States and China ACS, Alba, Union Fenosa and Iberdrola are all big players in the Spanish economy.

Alba is a financial holding company that belongs to Grupo March, one of the leading Spanish financial groups.

Originally specialising in investments in traditional sectors such as banking and finance, the group has recently refocused on areas like mobile telephony, the media and new technology.

As well as ACS, the group has shares in Carrefour, the French supermarket company, UK-based IT firm Spirent, and mobile phone group Vodafone.

With widespread activities in Madrid and Barcelona, Alba also has interests in the real estate sector, where it manages and lets various properties.

ACS's stakes in Iberdrola and Union Fenosa are worth a combined e8.3bn. Spain's largest construction company is benefiting from a building boom and diversifying into services and other industries that offer faster growth, wider profit margins or steadier returns.

ACS said yesterday that its 2006 net profit more than doubled, boosted by the sale of its stake in Inmobiliaria Urbis and strong contributions from other industrial holdings.

The company said its 2006 net profit rose to e1.25bn from e608.7m a year ago.

Iberdrola, meanwhile, said it will propose a four-for-one share split and issue 263.4 million new shares related to its purchase of ScottishPower. The company said this is the largest ever capital increase in Spain.

The measures will be put to shareholders at a general meeting on March 28. Shareholders will receive a premium of two euro cents per share for attending the meeting.