“With Friends Like These…” Spain Tries to Scupper Italian Takeover of “Strategic” Company
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The race is on in Spain to stop Atlantia SpA, an Italian infrastructure group majority owned by the Benetton family, from buying Barcelona-based toll-road operator Abertis Infraestructuras SA. Atlantia SpA made a €16.3-billion ($19 billion) bid for Abertis back in May. Thanks to the fact Atlantia can borrow money at an absurdly low rate (grazie mille, Signor Draghi), most of its bid is in cash.
Spain’s government has taken a keen interest in proceedings. “It doesn’t please us at all,” said senior government sources in May. The Rajoy government claims that the motorways controlled by Abertis, both in Spain and overseas, as well as its majority stake in Hispasat, the world’s ninth largest satellite operator, represent national strategic assets.
The biggest concern appears to be over the prospect of decisions pertaining to Abertis’ assets being made in another European capital, though according to sources cited by Expansión, the real reason is that the Spanish government “doesn’t want Abertis in Italian hands — it’s as simple as that.”
Spain’s Ministries of Development and Energy have even urged Spain’s market regulator, the CNMV, to block Atlantia’s takeover bid on the grounds that the Italian company did not ask for the government’s prior approval before tabling the bid. It’s a curious pretext given that the Chinese company Cosco did not request the Spanish government’s prior blessing before acquiring Noatum, the largest maritime terminals operator in Spain, which surely also qualifies as a key national strategic asset. Nor did the US private equity fund that owned Noatum before Cosco.
The delay in the Abertis buyout is taking its toll. Big global funds, some of which have already backed their respective horses with big money, are beginning to fret that the operation could end up getting bogged down in legal battles. “There is concern because the feeling is that a takeover bid of this size will not withstand two or three years of legal challenges,” one of the fund managers told Expansión.
It’s not the first time this year that an Italian company’s takeover bid for a European rival has been hampered by government intervention. In July France’s newly elected President Emmanuel Macron temporarily nationalized France’s biggest shipyards to frustrate an Italian takeover, ripping up a prior agreement in a protectionist move that infuriated Rome.
The Macron government blocked the sale of STX France to the Italian group Fincantieri in order to “defend the strategic interests of France”, using a ‘pre-emption’ right to buy all shares. In September a deal was finally struck that gave Italy’s Fincantieri (FCT.MI) effective control over French shipbuilding firm STX France but only under shared ownership and strict conditions.
Nonetheless, the diplomatic damage was already done, and it’s intensified feelings that Italian companies do not enjoy the same cross-border investment opportunities as their French or Germany counterparts.
Over the last five years, French companies have engaged in 177 Italian takeovers, for a total value of $41.8 billion. That’s six times Italy’s total corporate purchases in France over the same period. As the Italian author Thomas Fazi points out, this uneven treatment of cross-border corporate buyouts is not just causing a lot of lost love between European capitals; it’s leading to an increased “centralization” of European capital as German and French firms take over a huge number of businesses (or stakes of them) in periphery countries.
And now Spain’s government wants to take a leaf out of the same book.
Perhaps it hopes that by temporarily blocking Atlantia’s bid, it will buy Spain’s homegrown construction group Actividades de Construccion y Servicios (ACS) SA enough time to amass enough funds to table a more attractive bid. According to Comerzbank, one of the banks leading ACS’ credit syndicate, the Spanish firm has enough margin to raise the bid price to €21 per Abertis share — a substantial improvement on Atlantia’s initial offering price of €16.50 per share.
While Atlantia will be paying mainly in cash, ACS’ funds will be drawn from a variety of sources, including hybrid bonds, a €4 billion capital expansion, a bridge loan and over €10 billion of bank loans, all of it arranged by JP Morgan Chase, which will pick up some juicy fees along the way.
The irony is that ACS has only just managed to get its debt load down to a more or less sustainable level after making major divestments, returning to investment grade earlier this year. Now it wants to buy a company with an estimated enterprise value three times larger than its market cap (€31 billion vs €10 billion). And it wants to buy it through its German holding, Hochtief AG, which has most of its worth tied up in a 73% stake in Australian construction firm Cimic Group.
In other words, if the deal went through, the decision making over Abertis’ strategic assets would be made in Berlin, not Rome.
As Bloomberg reported in July, the deal looks “highly ambitious” — even by the standards of ACS’s “swashbuckling billionaire” CEO Florentino Perez, who also happens to be president of Spanish soccer behemoth Real Madrid. But one shouldn’t count Perez out just yet: so intimate are his ties with Spain’s central government that just about every time one of his businesses hits trouble, it gets bailed out by taxpayers, even when said business ends up triggering hundreds of tremors across a 125-mile stretch of Spanish coastline.
Spain’s government may be hoping that ACS will make a better suitor for Abertis once Spanish regulators have refused to authorize Atlantia’s bid, or it may, as Expansión posits, prefer it if nobody bought the company at all. What is clear is that when it comes to controlling national industries, there are, as in so many other areas of economic and monetary policy, still big limits to European unity and integration. By Don Quijones.
Then there are the “spillover effects” for Spain’s biggest banks. Read… Stressful Year Ahead for Spanish Banks
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