ACS wins crucial Hochtief stake after long bid battle

Reuters/Madrid/Frankfurt

A construction worker examines his work on a Hochtief construction site in Bad Soden, Germany. ACS wants control of Hochtief’s strong balance sheet to ease its own debt burden of more than €9bn ($12bn) and to help it diversify away from Spain’s struggling construction and property sectors

Spanish builder ACS has secured a crucial 30% holding in Hochtief following a hotly contested takeover bid, allowing it to build a controlling interest in the German construction group.

ACS wants control of Hochtief’s strong balance sheet to ease its own debt burden of more than €9bn ($12bn) and to help it diversify away from Spain’s struggling construction and property sectors.

But after reaching the key 30% threshold above which German takeover rules allow it to buy more shares on the market without making another offer for the whole company, ACS may not now be in a hurry to reach its 50% target.

Hochtief is not the only iron ACS, headed by Real Madrid soccer club president Florentino Perez, has in the fire. It is also pursuing board seats at Iberdrola by increasing its stake in the Spanish utility. Board representation would allow it to consolidate a proportion of Iberdrola’s earnings.

ACS said yesterday it holds 30.34% of Hochtief and will extend its bid to January 18 in an attempt to get more shareholders to accept its improved nine-for-five share offer, which had closed on December 29. It would need to find about 1bn euros to buy an additional 20% of Hochtief.

"I don’t think ACS will be in a hurry in 2011 to increase its stake in Hochtief, not least because it doesn’t have unlimited funding....It has already spent about 1.5bn euros in raising its Iberdrola stake,” Nuria Alvarez, an analyst at Renta 4 brokerage, said.

ACS has been gradually building up its stake in Iberdrola and passed 20% on Monday. Alvarez thinks it will now focus on the Spanish utility.

Daniel Gandoy, an analyst at BPI, had a similar view: "It will buy at the pace set by the market. It makes no sense for ACS to buy Hochtief at a high price to reduce its debt to EBITDA ratio.”

ACS is likely to have more cash available later in the year. It is seeking to sell about 1,757MW of renewable energy assets, that could be worth about €2bn.

"For ACS the road is now clear to move towards acquiring a majority in Hochtief. The Hochtief shares are losing steam, even though they are still very cheap,” analyst Heino Ruland, at Ruland Research, said.

Hochtief told Reuters that it will only become clear at the end of January whether the offer was successful.

A report in Germany’s Handelsblatt cited unnamed Hochtief sources as saying the company hopes that Germany’s financial regulator BaFin will annul the bid, based on the argument that Southeastern acted in concert with ACS. Southeastern said last month there was no pact with ACS to oust Hochtief’s board.

"There are some reports and some talks that there may still be options for Hochtief to fight against the bid. However, if BaFin hasn’t done anything up until now, they are unlikely to act now,” Frankfurt-based trader Frank Schneider said.

ACS’s success could result in changes at the top of Hochtief with analysts questioning what will happen to chief executive Herbert Luetkestratkoetter. ACS had initially said it would make few changes to Hochtief’s management if it won control, but that was before the board of Germany’s biggest construction group launched a bitter defence against its unsolicited bid.

"The question is, whether he will be able and willing to swallow his pride and stay on,” one Frankfurt-based analyst who declined to be named said, adding that he hoped the 60-year old would at least stay on until a suitable successor was named.