Hochtief defense
October 18, 2010
Spanish construction company Actividades de Construccion y Servicios (ACS) has until November 19 to present German regulators with its takeover bid for the Essen-based building group Hochtief.
ACS currently owns just less than 30 percent of Hochtief. It plans to increase its stake to just over 50 percent in an all-share offer that Hochtief says does not represent fair value for the group.
The hostile bid has sparked strong opposition from Hochtief's employees, with both the company's management and workers calling on Germany's political leaders to intervene.
German Chancellor Angela Merkel threw her hat into the ring for the first time on Friday, warning against splitting up the company.
Now the Financial Times Deutschland reports the federal government is reportedly considering changing securities legislation to hinder the deal.
"We are analyzing the existing regulations and examining the possible introduction of further requirements,” an unnamed government source told the newspaper.
This is not the first time Germany's political leaders have attempted to influence commercial developments in the nation's industrial sector.
Recent years have seen German governments shield companies from unwelcome takeovers or shore up troubled groups on a number of occasions.
In 1999, former chancellor Gerhard Schroeder launched a rescue operation for the troubled construction group Philipp Holzmann.
About two years ago, Merkel's government drew up plans to throw a financial lifeline to General Motors' ailing European offshoot Opel.
Political pressure
Speaking at a press briefing on Friday, Merkel's spokesman, Steffen Seibert, raised the political stakes in the takeover battle by describing Hochtief as a showcase of German technological expertise.
"For that reason, the government and the chancellor's office believe that Hochtief's industrial structures and headquarters should remain in Essen," Seibert told reporters.
"The government is monitoring this issue very closely and is in contact with the company," said Seibert. "It assumes that any activities that might take place will be in line with European law."
Initially, Berlin appeared reluctant to respond to Hochtief's appeals for help in its battle to repel ACS's unwelcome advances.
Economics Minister Rainer Bruederle has repeatedly ruled out any moves to intervene in the Hochtief takeover. Bruederle is a member of the pro-business Free Democrats, which are the junior member of the ruling coalition led by Merkel's Christian Democrats.
“German efforts to break down international trade barriers keep our export sector running. We must keep our own economy open in return,” Bruederle told the Handelsblatt newspaper on Monday.
White knight
The opposition Social Democrats (SPD) have seized on the controversy surrounding Hochtief to attack Merkel's response to the takeover.
In an interview with the German Press Agency dpa, SPD chief Sigmar Gabriel called on Merkel to find a corporate “white knight” to rescue Hochtief.
"The quickest way the chancellor can help is if she finds a consortium which is ready to take out a minimum 25-percent stake," Gabriel said.
"The political leadership gave considerable help to the German banks during the financial crisis," he said. "I think that the banks now have the responsibility to do something for Germany as an industry location."
Gabriel used a visit to Hochtief's headquarters on Thursday to criticize business rules in Germany, which he said failed to protect a good company like Hochtief from a takeover by a heavily indebted firm like ACS.
"What is happening here is economic nonsense," he said, adding that the regulatory framework should be changed.
German securities laws require bidding companies to make a mandatory takeover offer once their stake in a target company exceeds 30 percent. Gabriel said Germany should consider introducing additional mandatory-offer thresholds closer to 50 percent – a move that would make takeover bids less predictable and more expensive.
Australian defense
As German politicians debate the best course of action, Hochtief itself is preparing another layer of defense against ACS in Australia.
Hochtief's Australian subsidiary Leighton delivers around 80 per cent of the concern's total earnings and is widely considered the jewel in the crown that ACS is after.
The German company has therefore asked Australian regulators to oblige ACS to make a bid for outstanding minority shares in Leighton if it gains control of Hochtief.
The Australian Securities and Investment Commission (ASIC) has yet to make a ruling on the request. If granted, it could increase the cost of the Spanish takeover bid by up to 7 billion euros.
Author: Sam Edmonds (dpa, Reuters, AFP)
Editor: Nathan Witkop