Takeover Bid

For whom the tolls ring

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It never seems like much but tolls can add up to billions each year for operators. Source: Reuters

While the handful of euros motorists pay when passing through a toll booth may seem a trivial amount of money to individual drivers, it turns out these payments add up to billions each year and they have touched off a bidding war involving multinational companies in three European countries.

German construction giant Hochtief announced on Wednesday that it has made a €17 billion ($20 billion) offer for Abertis, the operator of toll roads in Spain and other European countries as well as in South America. Including stock held by Abertis in its own company, the bid is worth €18.6 billion, topping an earlier, €15.7 billion offer from Italian toll road operator, Atlantia.

Politics may be the driving force behind Hochtief’s dramatic offer. While the Italian bid for Abertis has already been approved by Spain’s stock market regulator and the European Commission, the Madrid government had qualms about turning over a Spanish business jewel to foreign owners. While Hochtief is German, it in turn is 72-percent owned by Actividades de Construccion y Servicios or ACS, one of Spain’s biggest construction firms, so the Hochtief bid may have the inside track.

“The acquisition makes little sense for Hochtief and even less for the ACS group.”

Alexander Malkwitz, professor, University of Essen

Hochtief CEO Marcelino Fernandez Verdes called the acquisition of the Spanish firm “the next strategic step” for what he termed the company’s planned move into infrastructure management. He said the combination of the two companies “will create a unique global, integrated group that is expected to generate substantial growth synergies.”

Abertis is an attractive target: it controls 8,600 kilometers (5,345 miles) of toll roads worldwide, including more than half of the most lucrative stretches of Spanish highways. In 2016, the company had revenues of €4.9 billion, with profits of €796 million.

Nonetheless, it is a huge and risky undertaking for the German firm, which has a market capitalization of less than €10 billion, while it proposes to pay nearly double that for the Spanish company, which also is lumbered with €15 billion in debt.

Beyond the financing issues, it’s an unusual acquisition given that the Spanish owners of Hochtief have set about selling off most of the company’s infrastructure business and have concentrated instead on construction. “The acquisition makes little sense for Hochtief and even less for the ACS group,” said Alexander Malkwitz, a professor of construction management at the University of Essen.

Enter the politics. Last week, just as the Italian bid seemed set to sail through, Spanish Transport Minister Iñigo de la Serna said the sale would have to be approved by the Madrid government because highways are a strategically important industry. ACS CEO Florentino Perez has huge clout in Spain, not least because he is also president of the Real Madrid soccer team.

In fact, ACS was once a part owner of Abertis, which was formed by the merger of two toll road companies, but later sold its shares. Now the largest shareholder is Spanish bank La Caixa, the country’s third-largest financial institution. It has a 22 percent stake in Abertis, and may come under political pressure to do a deal that keeps the company in Spanish hands. The bank was among the firms forced to move its headquarters from Barcelona to Madrid last week to avoid becoming caught up in Catalonia’s independence drive and it may want to demonstrate its solidarity with Spain.

Hochtief has already lined up a consortium of banks led by J.P. Morgan to provide a €15 billion loan. It will fund the remainder of the purchase by issuing new shares, which would dilute the ACS holding in the company. ACS is benefiting, however, by Hochtief take all the credit risk.

There is also a history of bad blood between Abertis and Atlantia, owned by Italy’s Benetton family, which made its fortune in off-the-peg women’s clothes. Abertis tried to buy Atlantia in 2006, when the Italian firm was known as Autostrada, but the deal was blocked by the Italian government, which didn’t want one of its business jewels falling into foreign hands.

This story was adapted for Handelsblatt Global by Charles Wallace, an editor for Handelsblatt Global in New York. Maike Freund is an editor on Handelsblatt’s politics desk. Sandra Louven is Handelsblatt’s Madrid correspondent. To contact the authors: To contact the authors: freund@handelsblatt.com, Louven@handelsblatt.com and c.wallace@extern.handelsblatt.com.

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