Hochtief takeover
January 4, 2011
The complete takeover of Germany's biggest builder Hochtief by Actividades de Construccion y Servicios (ACS) appears to be inevitable.
Having secured more than 30 percent of Hochtief shares, ACS is now free under German takeover law to build its stake in the Essen-based company by purchasing further shares on the open market - without facing any deadline.
If successful, ACS would become the largest construction company in the Western world.
International expansion
Analysts say ACS' prime interest lies in broadening its global presence.
"ACS has been really hard hit by the realty crisis in Spain, so they are seeking to diversify," said Kai Lucks, Chairman of the German Mergers & Acquisitions Association.
Only about a quarter of ACS' turnover comes from abroad. Hochtief, on the other hand, prides itself on being the world's most international builder. More than 85 percent of its turnover is generated by overseas subsidiaries such as Turner in the United States and Leighton in Australia.
While Hochtief is essentially free of debt, ACS is saddled with liabilities worth nine billion euros. As a result, Hochtief managers fear ACS may sell Leighton or Turner to finance its acquisition of the German company and stabilize its financial position.
"Of course they'll want to improve their budget at the expense of Hochtief," Lucks told Deutsche Welle.
Crumbling defense
At Hochtief, both chief executives and workers battled the hostile bid for months.
While union leaders pressured politicians in Berlin to change German takeover laws to hinder ACS, Hochtief CEO Herbert Luetkestratkoetter hired experts at Credit Suisse, Deutsche Bank and Goldman Sachs to advise him on defensive strategies.
These included an unsuccessful appeal to Australian stock exchange regulators to force ACS to make a separate, fully financed bid for Leighton – a move that might have rendered the takeover too expensive for ACS.
When that maneuver failed, Luetkestratkoetter ordered a capital increase that sold a 9.1 percent stake in the company to an investment fund from Qatar. The stock issue aimed to dilute ACS' existing stake in Hochtief and make it more difficult for the Spanish firm to reach the 30 percent threshold.
Management to blame?
But critics say it was Luetkestratkoetter himself who made Hochtief a takeover target with his conservative, risk-averse management style.
"It's not enough to be a good manager," said takeover expert Lucks. "You also have to manage the share price."
"If your company is in good shape you have to take care to push up the stocks in order to deter a takeover."
Lucks added that Hochtief first opened the door to an ACS takeover in 2007 when it let the Spanish company become a major shareholder.
"I'm sure that with this move, Hochtief was hoping to create synergies, but in the end they opened a flank."
Workers disappointed
Hochtief employees' opposition to ACS' bid was dealt a major blow when a rift opened up between company labor representatives and trade union leaders.
While the company's works council warned German lawmakers that ACS could dismantle the company and lay off large numbers of workers if it gained a 50-percent stake in the company, German builders' union IG Bau entered its own negotiations with ACS.
Just days before Christmas Eve, IG Bau announced it had dropped its opposition to ACS' bid after the Spanish company promised it would not relocate Hochtief's headquarters or fire any of its 11,000 workers.
But that deal is only guaranteed until the end of 2013. The head of Hochtief's works council, Siegfried Mueller, said the union's decision to cooperate with ACS was short-sighted given its track record at Dragados – a Spanish industrial company it acquired in 2002.
Mueller told Die Welt newspaper that a letter sent to Hochtief by a former Dragados employee claimed ACS had cut some 6,000 jobs at the company since it was taken over. Many of the layoffs were allegedly disguised as disciplinary proceedings.
Author: Andrea Roensberg
Editor: Sam Edmonds