The Inconvenient Limits to European Unity & Integration

“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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  31 comments for “The Inconvenient Limits to European Unity & Integration

  1. John M says:

    Maybe the smart move is not to bid for assets at the end of 9 year bull run in market prices. I know I’m not paying up for Bitcoin. If you’re buying here I suspect you’ll end up in tears..

  2. R Davis says:

    I hope you don’t mind me taking a brazen liberty Don.
    I’d like to send a big cheerio to my local federal member of parliament.
    Hello Mr. P. Khalil.

  3. g wiltek says:

    cheap financing from ECB.
    That is what has kept America running for 45 years. Money printing.

    • Julian says:

      Which creates inflation and hyper-inflation and destroys said countries economy!’

      The US is well on the way to economic implosion with out of control money printing causing out of control hyper-inflation.

  4. Gershon says:

    One fine day the sheeple are going to stop grazing on the green shoots growing from the manure the corporate media spreads around their pasture, realize they’re getting fleeced, and get very, very pissed off at our oligarch overlords and their Republicrat Duopoly political prostitutes. And they’re going to belatedly realize that all these globalist schemes to corral them into the globalists’ incorporated neoliberal plantation are solely aimed at extracting every bit of wealth and productivity from them before dispatching them to the slaughterhouse. And then we might see REAL resistance to these systemic swindles by The Powers that Be.

    But for now, the sheeple graze on in blissful ignorance.

    • William Smith says:

      Well said Gershon! However, nobody (the “sheeple”) cares. They have been taught to be mindless consumer/production drones (work, consume, borrow/slave, breed, die), with all ability to look at the bigger picture carefully stripped away by a corrupt “education system” (“The closing of the American Mind” Allan Bloom 1987). Jesus said to be either hot or cold, but if you are lukewarm he will “spew you out of his mouth” (Revelation 3:14–21). The sheeple are all lukewarm: and sadly they deserve what they get. Choose a side: become a corporate c*** or fight the corporate bastards, otherwise you are just fodder to be tossed about. This is nothing new but *the* fundamental (and never ending) human struggle that began when man first clumped together in groups in the caves.

  5. Stevedcfc72 says:

    Good article DQ.

    This completely sums up the EU.

    Its supposedly all a happy team of countries but everyone is in it for themselves.

    Germany using the cheap euro to improve exports.
    Ireland with a 12.5% corporation tax rate, EU countries lose out on billions as sales are shifted through Ireland.
    France with its CAP Policy.
    Eastern European Countries who like the financial benefits of being in the EU but don’t like the idea of people emigrating there.

    The list is endless.

    If a Spanish Company can own Heathrow Airport then why not an Italian Company owning the company above.

    • Nicko2 says:

      Indeed, what is the problem? With free movement of people and capital, everyone should act in their own interest and migrate to where the jobs and opportunities are. Open borders, open trade. Would struggling Italian companies prefer to be taken over by a Chinese conglomerate?

      • Crysangle says:

        Where you draw the line at Chinese, others might draw the line at say German. It is political and social, how large a trade area is “right” ? You don’t have the answer as their isn’t one, except that one way or another people choose , including at a collective level via national policy.

        • Kraig says:

          The Chinese are not in the eu though and the Germans Italians and french and Greeks and Romanians are.

    • walter map says:

      “If a Spanish Company can own Heathrow Airport then why not an Italian Company owning the company above.”

      As if that would matter. As Jefferson noted, merchants have no country, and the mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.

      National governments are largely controlled by transnational corporations, and they govern mostly for the benefit of businesses that have paid for political influence, not for the people they purportedly represent.

      Patriotism and nationalism are irrelevant to such companies except as levers of profit. Their rentier extraction might be more efficient if they could consolidate the European hodgepodge of ethnic nationalities, thereby reducing overhead and centralizing control, but so far they have not been able to do that. Oh, wait . . .

    • Gibbon1 says:

      Difference I notice about the US vs the EU at least talking to my bubble of ordinary people.

      Americans might piss on other states and regions. But it bothers them that say Puerto Rico is fucked, that Louisianan is poor and corrupt. If someone flees some depressed part of the US for some other place in order to make something of themselves, people admire that.

      Talk to people from Europe, they think Greece getting hammered is just comeuppance. And they can give two sh*ts about the people that live there. If someone flees some bad situation in Eastern Europe to make something of themselves, they’re resented.

      Given that I don’t think the EU should exist in it’s current form.

      • Stevedcfc72 says:

        I don’t agree with that at all, it bothers most Europeans what happens in other European countries and that’s from a Brexiteer lol.

        What’s happened in Greece is sad as with Puerto Rico its the normal people-families in the street who suffer not the politicians who’ve sucked everything out of the economy of that country.

        If someone from Eastern Europe comes to another country and gets a job and works hard, fair play to them.

        I totally agree though in its current form the EU is not fit for purpose.

  6. caradoc says:

    Northern Europeans look down their noses at the Southerners.

    Occasionally some politico in Germany let’s the cat out of the bag with an unguarded comment but be under no doubt the old prejudices still exist.

    The game will be tilted against Italians, Greeks, Spaniards and Portuguese, always.

  7. Alessio says:

    On the long run, this is very good for Italy. The country will have no choice but get competitive. Its economic system increasingly depends on foreign inwards investments.
    However, the government debt is a hurdle as taxation can’t be reduce.

    • Crysangle says:

      Of course, once foreign multinationals own a country’s businesses and their earnings , and foreign banks own the national debt and interest on that, the average person is going to have to compete mighty hard to earn his place and win some money back. I am not sure business should be competing internationally for ownership of national assets is all… not sure where or how to define a boundary though.

  8. pete says:

    u know, Wolf & Mr. Quixote, the EU has NATO (a defensive force that was free for decades and is one of the principal forces for a strong central government), so why isn’t the Union a bit more loosely organized in which member-nations cooperate on some stuff and compete on others. I think if Spain, for instance, can manage to hold Barcelona, why can’t the EU hold together for a visa-less & Brussels-lite Union. easy for me to say.

    Best for an ’18 of peaceful resolutions (again, the dreamer I am in the face of this stuff, please see below)…pjs

  9. Crysangle says:

    ” the real reason is that the Spanish government “doesn’t want Abertis in Italian hands — it’s as simple as that.” ”

    Quite right… reasons being from much of infrastructure being part public initiative, the political and financial ties in that, through to not allowing heavy outside influence on future policy.

    There was a lot of boom infrastructure overbuild, including toll motorways, many are basically bankrupt, but does not stop them being government pet projects.

  10. cdr says:

    Good Plan.

    1) ECB lowers rates to negative, prints lots of money and uses some to buy commercial debt.

    2) Companies that issued commercial debt use it to buy hard assets.

    3) Result: an endless supply of printed money is converted into hard assets. Potentially, the ECB is financing a world wide asset buying binge with money conjured up out of thin air. Assets with billions of dollars in value have a cost basis of $0 in euros and would be owned by European interests. Great way to take over the world.

    4) The Swiss National Banks does this today with equities … tens of billions of dollars in equities with a $0 cost basis. They could lose half in value and still enrich the Swiss with billions in gains. GREAT trade.

    Remember, the cost basis of a printed unit of currency is $0. If you give actual value for the recently printed currency, you have the currency but the nation issuing the currency has the asset.

    Maybe, this is the battleground for the next international trade war?

    Resolved … any country that prints endless money CAN NOT use it, directly or indirectly, to purchase assets with actual value in the USA.

    • cdr says:

      Or to put it another way,

      Printed money has a $0 cost basis to the issuing country. If the currency is used within the issuing country – no harm no foul. People are in a closed system and living as they agree … unless they turn into Venezuela or the like.

      If the printed currency is used outside of the issuing country, then it’s an acquisition scheme to convert foreign assets into assets owned by the printing country and give them a macroeconomic cost basis of $0. Cheaper and easier than invasion and people line up and beg for the issuing country to take away their hard earned wealth.

      Low wage trade is the old way to acquire the wealth of other nations. Today, it’s printed money exchanged for hard assets in other nations.

      Perhaps large scale US acquisitions from nations that print heavily, such as everyone else, should be treated as being sold for debt and the printed money should be treated as a liability of the issuing nation … thus requiring a national collateral if the currency eventually collapses in value.

      Food for thought.

      • cdr says:

        The next Goldman designed CDO?

      • Justme says:

        >> … thus requiring a national collateral if the currency eventually collapses in value.

        That is how the IMF treats third-world countries and their central banks, is it not? The debtors have to pledge as collateral such national assets as power plants, electrical grids, water works and roads, do they not?

        So far the IMF has not been able to treat the G20 this way (I think), but perhaps that is the next logical step. It is probably not a good idea, though. The elites of many countries will conduct economic warfare against each other on a grand scale.

      • Kraig says:

        How would the recproical arrangement affect the USA? Who is the heaviest money printer. Will the other central banks stop now the US has as they were only responding to stop the US buying all assets with an inflated dollar? Food for thought.

    • Crysangle says:

      I follow your thinking there, but lost it at not being able to purchase US assets. For example there is or was a large EU fdi into the US, balance of the trade deficit maybe. The way I see it is elites buying into the political economy of other countries where they can, pretty much on a mutually accepted basis, to a common transnational or global theme. That they end up warring is not in their interest, that they inadvertently or purposefully doom the economy of others neither… but they also have differing agendas, and national power, the wider economy, are not under their control… hence the potential for conflict…and the push for wider social and monetary control ( i.e. state cashless) .


      • Crysangle says:

        Didn’t catch this clearly :

        “Perhaps large scale US acquisitions from nations that print heavily, such as everyone else, should be treated as being sold for debt and the printed money should be treated as a liability of the issuing nation … thus requiring a national collateral if the currency eventually collapses in value.”

        To my view asset title means access to the flow of income from that asset, wherever it is based, in the currency of where it is based. In exchange for that asset title the foreign acquirer of the asset fires up his own currency “print” , placing that new currency ( which deducts from total value of that own currency by dilution but adds the new asset to its worth) in the hands of foreign owners, for them to do as pleased with. If they change it to their own currency the fx rate of their currency rises, that of the issuing nation becomes weaker and the inhabitants become a tad poorer on the international scale. If two states are carrying out transactions like this with each other simultaneously , the fx will remain stable, asset ownership will change hands, and there will be an increase in money supply in both currencies, hence inflation in both countries, for which the average person pays. So you can see how they march lockstep towards a two class society at global level.

        • cdr says:

          When you buy a car, the car is the collateral. The collateral does not involve how you use the car.

          When a prolific money printer prints a currency to buy a large international asset, the asset transfers along with all ancillary value streams. If the currency subsequently collapses in value because of worthlessness due to prolific money printing, the asset remains in foreign hands free and clear. You still hold worthless foreign currency, or somebody somewhere holds the currency printed for the asset sale.

          A central bank oriented CDO dealing with printed currency valuation would be denominated in the currency of the asset sold and valued based on original amount, duration, current spot value of foreign currency, and quality of the balance sheet of the money printing country who is guarantying the cash value. The CDO would be traded openly and eventually mature.

          Think of money printing for international asset purchases as a bond obligation that needs insurance, hence a new form of CDO. Don’t conflate it with econobabble.

        • Crysangle says:

          You can hedge anyway you choose, create CDOs, whatever… market prices are what they are and people are free to allocate where they like..
          the only question I would have is if it helps create transparency, or hides it. More complex means hide in my book, the value of money is already very controlled, so an index to measure trust in that control is one thing, but if traders want to create an instrument that “promises” to level the balance, create “additional depth” of meaning, a new and successful countermeasure even, who am I to say :-) . It all depends how it is used and by who… usually those who already control the money I think, and that would make it a policy tool, no?

      • cdr says:

        I only see the problem, or potential problem. I don’t claim to have the solution. A CDO treating a nation’s currency as a nation’s liability if used for an international large scale asset purchase is one solution. It would be a massive insult to the printing country to have their currency treated as having such sketchy value.

        Using central bank printed money for hard assets in another country is simpler than invasion. If the currency is eventually declared worthless, the asset remains in foreign hands.

        The Swiss National Bank has the best scheme going today, in my opinion.

        The solution is not as simpleminded as what I wrote. It may follow that thinking but nobody has ever treated a national currency as low quality debt before. I don’t claim to have the answer. This does, not negate the problem.

        • Crysangle says:

          You replied before my next comment came out of moderation… see where we stand after reading that will be better ;-) .

  11. Justme says:

    Taking a step back, I think the original reason that the G20 central banks generally enter into currency “swap lines” (of credit) has to do with CB recognizing that quantitative easing as well a interest rate manipulation has the potential of allowing one country to take over another, economically, and they do have a bot of a gentleman’s agreement not to let it get entirely out of hand in times if extreme crisis.

    On the other hand, I have suspected since 2008 or so that Central Banks in more “normal” times compete heavily with with each other about who can have the highest asset inflation, because that creates the ability for their home country to overvalue heir own collateral and buy cheaper assets in other countries, and to dominate these countries economically.

    The “problem” with EU and ECB is that the member nations (unlike US states) are sufficiently nationalistic that they will not accept that other nations get to exercise internal but cross-border economic domination over them. But it is ironic that in this case it is Italy trying to dominate Spain with ECB-funded euros. One would think that Germany might try to own the weaker EU countries, but instead it is the weaker EU nations waging economic war against each other.

  12. Jim Graham says:

    And I thought that joining the EU was supposed to stop all of this foolishness…?

    Am I stupid or has the EU membership forgot what their
    “plan” was???

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