Abertis | One of the currently most exciting takeovers in EuropeWhat follows reads like the script for a business thriller. Gripping, with some unpredictable dodges and a furious finale that remains open until the end. The takeover battle for the Spanish highway operator Abertis makes use of all dramaturgical tricks and even moves the political stage, but due to its complexity it is only something for real fans of this genre.
The protagonists
On the one hand, Atlantia, an infrastructure company from Italy. Management hopes that this acquisition will make it the world's largest highway operator and replace the previous no. 1, to finally replace Vinci from France.
On the other side ACS, a Spanish mega-construction group with its German subsidiary Hochtief, which was to present itself as a tough antagonist.
Curtain up
In May 2017, Atlantia launched a takeover bid for Abertis in the amount of EUR 16.50. The rise to Nr. 1 in the squad of freeway operators seemed to be free. There were no antitrust problems to worry about, after all, the two companies are mainly active in different countries. However, an obstacle quickly emerged that Atlantia had not anticipated: the Spanish government's latent aversion to Atlantia as a new owner.
Spanish Economy Minister Luis de Guindos was at pains to maintain a neutral stance on the planned takeover. But when he spoke of a "national interest" in Abertis, a certain skepticism about groups from Italy always resonated subliminally as well.
The memory of the failed 2006 takeover of Autostrade, Atlantia's predecessor, by Abertis, which had failed due to the concerns of the government in Rome, was too fresh. Other Spanish companies had experienced similar resistance from Italy. In this respect, it is an open secret that quite a few would prefer an "all-Spanish solution" in a takeover of Abertis. The fact that Abertis, with a 33 billion. EUR is not a small company, which does not necessarily simplify the whole thing.
The Grupo ACS (Actividades de Construcción y Servicios) has finally become active as the savior of Spanish interests. ACS had already invested around 26% in Abertis years ago, but had to sell this stake due to a crushing debt burden. Since even today the ACS balance sheet would not permit a takeover of such magnitude, a trick was used: the counterbid to Atlantia was not submitted directly by ACS, but through the German subsidiary Hochtief.
In October of last year, Hochtief outbid its competitor's offer of EUR 18.76 per Abertis share. Abertis shareholders who wish to participate in the newly created joint venture can accept an exchange offer for Hochtief shares as an alternative to the cash component.
Our baseline scenario
Paladin had the opportunity to acquire the Abertis share at an attractive discount compared to the offer of 18.76 EUR by Hochtief. Basically an engagement with a double bottom. Because even if Hochtief's takeover failed, Atlantia's parallel offer would have limited our downside price risk.
A play in several acts
If the Hochtief share price had continued to rise until the end of the acceptance period, the exchange offer (as an alternative to the cash component) would have offered the opportunity to collect a significantly higher premium. However, since the rate has decreased noticeably in the meantime, this option does not seem very realistic at the moment.
At the same time, however, the probability of a second positive scenario has increased since then: after Hochtief outbid Atlantia's present offer, it is now not impossible that Atlantia will follow suit and increase its original offer again. Anyone can imagine that such a bidding war would be convenient for us.
"We believe we have room to make our offer adequately competitive, at the right moment, without jeopardizing value creation."Statements like this one from Atlantia's CEO Giovanni Castellucci underscore how determined they are in the fight for Abertis. Looking at Altantia's business model and plans, this decisiveness is not at all surprising. According to media reports, Atlantia enjoys the support of the banking consortium for an increase in the offer through new bonds, further sales of parts of the company or new credit lines. At the moment, therefore, there is much to be said for an improvement of the Atlantia offer.
One way or another: our commitment is already contributing to fund performance and thus bearing fruit. The stock market is already anticipating the aforementioned improvement in the price of the Abertis share, which currently stands at EUR 19.40 and is thus around 5% above our purchase price.