The battle to control the country's biggest construction company, Leighton Holdings, is about to heat up as shareholders of the Spanish construction giant Grupo ACS meet this Friday in Madrid to vote for the issue of 50 per cent of new shares.
The proposed monster equity issue of 157 million new shares in ACS is tipped to succeed - more than 60 per cent of its shareholders have already indicated their support.
Unlike other share issues, this is contingent on ACS needing the extra shares in its battle to control the German construction giant Hochtief, which in turn controls Hochtief's jewel in the crown, a 54 per cent stake in Leighton and four seats on the Leighton board. ACS is an active 29.9 per cent shareholder on Hochtief's share register, and if all goes according to plan it will soon have the power and influence to break up Hochtief, sell its assets, and overhaul the Leighton board, which recently speeded up the retirement plans of the chief executive, Wal King, after relations between King and Hochtief became toxic.
Once ACS shareholders approve the equity issue, the next step is for the German regulator Bafin to approve the offer, which was officially filed late last week. German authorities typically take 10 to 15 days to approve the offer once it has been filed, which means ACS would be allowed to start increasing its stake from November 23 at the earliest.
The strong rumour is it will use this equity firepower to complete the transaction by the end of January, paying a higher price than the current offer, which just happens to be when King relinquishes his crown.
ACS and King have a strong relationship. King has cultivated this relationship over the past few years - much to the chagrin of Hochtief, which feared ACS wanted to control Hochtief - and in May King visited ACS in Madrid to discuss a joint venture in mechanical engineering.
Leighton and ACS have been jointly tendering for a range of power and water projects in Australia and Asia.
A merger between ACS and Hochtief would be likely to result in King taking a board seat at ACS and at some stage becoming one of its four representatives on the Leighton board - a prospect that would make a number of people on the Leighton board uneasy.
Speculation is also rife that ACS has lined up some debt, again to make its bid for Hochtief bullet-proof. ACS needs 112 million shares to acquire 100 per cent of Hochtief.
A hostile takeover would not be complete without hedge funds. It is believed that up to 20 per cent of Hochtief's shares are in the hands of hedge funds, which are punting that if ACS wins control of Hochtief, it will overhaul the company and extract value.
The British hedge fund Centaurus Capital, which is one of Hochtief's biggest shareholders, recently told the Financial Times that it "welcomed" ACS's approach and criticised Hochtief's management for failing to close the value gap.
It has a point. Hochtief's results show that the lion's share of its profit - a massive 84 per cent - come from its stake in Leighton. Its market capitalisation of ?4.38 billion ($6 billion) is less than two-third's of Leighton's $9.5 billion market capitalisation. This implies the market is chronically undervaluing the rest of Hochtief's assets, which are worth billions of euros. It also indicates that those assets need to be restructured to extract value.
These include the Turner and Flatiron construction companies in the US, an extensive concessions business which includes stakes in airports around the world including Sydney Airport, a real estate business, and a construction business in Germany.
Deutsche Bank in Germany values Hochtief on a sum of the parts basis at more than ?80, which is well ahead of the ?62.64 the company closed at on Friday.
Since ACS announced its hostile takeover for Hochtief on September 16, Hochtief has attempted, albeit unsuccessfully, to derail the offer. This included a search for a white knight, a plea to the German government to block the offer, an application to the Australian regulator, the Australian Securities and Investments Commission, to force ACS to make a follow-on "downstream" takeover offer for Leighton, and more recently an application from Leighton and Hochtief to the Australian Takeovers Panel to get them to block or force ACS to modify the offer.
With their options running out, Hochtief is now listening to the mutterings of hedge funds - and shareholders - and said last week it would consider selling or floating its airports and infrastructure concessions business to extract value.
Between now and the end of January there will be many more twists in the battle to create one of the biggest construction companies in the world, but for Leighton management, the board and shareholders, they are mere pawns in the process.
Frequently Asked Questions about this Article…
What is the takeover battle between ACS, Hochtief and Leighton about?
Spanish construction giant Grupo ACS is trying to gain control of German builder Hochtief, which itself owns a 54% stake in Australian construction company Leighton. ACS plans a large equity issue to fund a bid to break up Hochtief, sell assets and install new representatives on Leighton's board — moves that would reshape all three companies.
How will ACS’s proposed equity issue affect the takeover timeline?
ACS has proposed a large equity issue of about 157 million new shares (roughly a 50% new issue) that already has the support of more than 60% of its shareholders. After shareholder approval in Madrid, the German regulator BaFin usually takes 10–15 days to approve the offer; if approved, ACS could start increasing its Hochtief stake from around November 23 and aims to complete the transaction by the end of January.
What could a successful ACS takeover mean for Leighton shareholders?
If ACS gains control of Hochtief, it would likely overhaul Hochtief’s assets and its influence could lead to changes on Leighton’s board — including the possibility of ACS or allied directors taking seats. The takeover could trigger strategic changes, asset sales or management reshuffles that would directly affect Leighton shareholders.
Why are hedge funds important in the Hochtief takeover fight?
Hedge funds own up to about 20% of Hochtief’s shares and are betting that ACS will win control and extract value by restructuring assets. Some, like British fund Centaurus Capital, publicly welcomed ACS’s approach and have been critical of Hochtief management for leaving a perceived value gap — making hedge funds influential in the outcome.
Are Hochtief’s assets considered undervalued and why does that matter to investors?
Yes — the article notes Hochtief’s market capitalisation (about €4.38 billion) is well below the implied value of its parts, especially given 84% of its profit comes from its stake in Leighton. Deutsche Bank’s sum‑of‑the‑parts valuation exceeds €80 versus a recent close of €62.64, suggesting potential upside if assets are restructured — a key driver behind the takeover interest.
What regulatory or legal hurdles could slow or block ACS’s takeover plans?
Possible hurdles include BaFin approval in Germany, attempts by Hochtief to find a white knight, appeals to the German government, and Australian procedures such as applications to ASIC or the Australian Takeovers Panel seeking to block or modify ACS’s approach. These actions have already been used by Hochtief and Leighton to try to derail the bid.
How might ACS finance its bid besides issuing new shares?
The article reports speculation that ACS has also lined up debt financing to make its bid more robust. ACS needs about 112 million shares to acquire 100% of Hochtief, so a mix of equity and debt is being discussed as likely funding sources.
What should everyday investors in Leighton or Hochtief watch next in this takeover saga?
Key developments to monitor are the ACS shareholder vote in Madrid, BaFin’s approval timing (typically 10–15 days), any increase in ACS’s Hochtief stake from late November, potential board changes at Leighton, announcements of asset sales or restructures, and hedge fund or regulator interventions — all could materially affect share prices and investor outcomes.
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