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Spain's ACS is poised to take control of Hochtief

The ACS acquisition of Hochtief could someday become an intriguing case study for MBA students – a highly complex deal with no clear outcome.

A heavily indebted Spanish construction giant that relies on a stagnating economy in its home market for most of its revenue is poised to take over a cash-rich German blue chip company.

What many thought impossible is nearing reality: Baring something short of a miracle, Grupo ACS, which stands for Actividades de Construccion y Servicios, will become Hochtief's new owner, possibly as early as January.

Biggest deal ever

Florentino Perez, the billionaire chief executive of ACS who is also president of the Real Madrid soccer team, moved a step closer to completing his biggest deal ever when the Spanish construction conglomerate was expected to take control of more than 30 percent of Hochtief under a nine-for-five all-share offer by a Wednesday night deadline. It had already secured a 29.4 percent stake by Tuesday evening.

Due to the complicated evaluation of the share holdings, ACS said it will announce the total number of shares acquired on January 4.

Hochtief engineers

Hochtief failed to build a strong defense to the ACS hostile bid

Under German law, a 30 percent stake enables a potential acquirer to buy more shares of the target company on the open market without making public disclosures on its way to reaching more than 50 percent and assuming control.

After Hochtief rejected a 4.9 billion all-share acquisition bid that ACS initially mentioned in September and officially launched in early December, the two companies have been ensnarled in a messy tug-of-war, which is now coming to an end.

In what observers view as a sign of acceptance, Hochtief revealed on Wednesday a deal with its creditors to allow for the change of control. The company's lenders have waived their right to cancel credit lines should any shareholder hold more than 30 percent, thus smoothing the way for the much more heavily indebted ACS to build a controlling stake.

Trade union on board

Also on Wednesday, another potential obstacle to the takeover was removed. Representatives of the IG Bau trade union agreed to remove their objections to the acquisition in exchange for assurances of no redundancies as a result of restructuring. The deal is guaranteed until 2013.

ACS hopes to benefit from Hochtief's stronger balance sheet, reduce its dependence on the bombed-out Spanish construction industry and to win more international deals.

Union workers opposing ACS deal

The German trade union IG Bau has dropped its objection to the takeover

Hochtief receives more than 90 percent of its annual revenue of nearly 19 billion euros ($24 billion) from outside the country, particularly Asia and the United States. One of its biggest revenue generators is Australia's Leighton Holdings, in which it has a 54 percent stake. By comparison, ACS makes most of its money in Spain and Latin America.

At the end of September, ACS' net debt stood at 9.08 billion euros, compared with Hochtief's debt of 447 million euros.

Hochtief has been upset with ACS, which owned 29.98 percent of the company before the hostile bid, ever since the large minority owner announced its acquisition plans. The German company has argued that the bid undervalues its assets and the merger isn't in shareholders' interests.

Diluted stake

As part of a defensive ploy, Hochtief sold the government of Qatar in early December a 9 percent stake at about a 10 percent discount of the market price. The move, which diluted ACS' stake to 27 percent, infuriated Hochtief's second largest shareholder, Southeastern Asset Management.

The US investor, with a 4.86 percent stake, sold half to ACS, pushing the Spanish company closer to its 30 percent ownership goal. Southeastern also owns 6.5 percent of ACS.

Author: John Blau (Reuters, AFP)
Editor: Nicole Goebel

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