Hochtief takeover

After initial overtures pointed to a possible intervention in the takeover bid of Essen-based Hochtief by a rival international construction company, the German government has backed down from its position in favor of letting the market run its course.

Spain's Actividades de Construccion y Servicios (ACS) in September announced its intention – which has been described as hostile – to increase its nearly 30 percent stake in Essen-based Hochtief and gain control of the company.

SPD party leader Sigmar Gabriel called on Berlin to protect Hochtief when he visited the company's headquarters last week, as German media reports suggested the government was contemplating changing securities laws to make the takeover more difficult.

However, Economics Minister Rainer Bruederle denied Monday that government intervention would take place.

"Naturally we would like for Hochtief to stay in Essen, and that as many taxes as possible are paid in Germany,” he said. “But I am not intervening in the market process, as many reports state.”

Government spokesman Steffen Seibert said that although officials were examining whether securities regulations should be made more stringent, preliminary findings did not support such a move.

“Any alteration of our takeover laws is unlikely,” Seibert said, adding that the federal government saw little scope for legal action against the ACS bid.

One-month extension

Hochtief has prepared a number of defenses against the takeover bid, including a possible capital increase. By creating new shares, Hochtief could water down ACS's current 30 percent stake in the company and make a controlling stake more expensive to obtain.

And Hochtief now has an additional month to shore up its defenses.

ACS has been granted a month-long extension to its offer deadline by German financial regulator BaFin, meaning it now expects to complete its offer in January 2011 instead of by mid-December, as was initially planned.

As part of deal with BaFin, ACS announced Friday it is planning a shareholder meeting within the next 35 days with the intention of conducting a capital increase of its own.

According to Stefan Roehle, a Frankfurt-based analyst with Independent Research, BaFin blocked ACS' initial plan to offer 8 shares of ACS for every 5 shares of Hochtief because ACS didn't have enough available shares on hand.

“That is a requirement of BaFin,” he told Deutsche Welle. “Naturally that delays the entire takeover process.”

Australian subsidiary

Another line of defense for Hochtief is its Australian subsidiary, Leighton, which delivers about 80 percent of the concern's total earnings. Australian regulators are being asked to rule whether ACS will be required to bid on outstanding minority shares in Leighton, should it take over Hochtief.

"That could become really expensive for ACS,” Roehle said, adding that asking regulators to require the bids to be made in cash and at a premium is a “poisoned pill” strategy.

There has been some speculation that Hochtief could go so far as to transfer its ownership to Leighton to protect itself from ACS.

Not surprised

Now that the German government has backed away from intervention plans, Hochtief is left to its own devices, Roehle said, adding that “it's going to be difficult for Hochtief.”

“All of this is designed to stir up uncertainty at ACS, which helps to win time,” he said. “But if it will actually hinder a takeover by ACS is questionable.”

Roehle said he wasn't surprised Berlin won't intervene, in part because of a precedent set by cases including the near-bankruptcy of the department store chain Karstadt. It was saved earlier this year by billionaire investor Nicolas Berggruen, rather than by a government bailout.

“We've seen this before… where the government didn't involve itself,” Roehle said. “There were always discussions, but the end effect was that the political establishment didn't get involved. So from that perspective this isn't really a surprise.”

Author: Gerhard Schneibel
Editor: Sam Edmonds