Spanish raider stalks Hochtief

Q: Why did Germany’s financial regulator BaFin approve the ACS bid and what conditions did it require?

BaFin approved ACS's offer after requesting significant improvements to the offer document, which ACS subsequently met. One of the improvements BaFin sought was for ACS to seek a capital increase from shareholders to ensure it could finance the bid if a large number of Hochtief shareholders accepted the offer.

THE parent and major shareholder of Leighton Holdings, the German construction group Hochtief, has lost its biggest battle to date in its takeover war against a Spanish predator, ACS.

By InvestSMART · 1 Dec 2010

By InvestSMART ·
1 Dec 2010

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THE parent and major shareholder of Leighton Holdings, the German construction group Hochtief, has lost its biggest battle to date in its takeover war against a Spanish predator, ACS.

Germany's financial regulator, BaFin, approved ACS's offer for Hochtief late on Monday, pushing the change of ultimate control of Leighton another step closer.

BaFin said it had requested "significant improvements" to the offer document from ACS during its review, which were subsequently met. ACS, which already owns just under 30 per cent of Hochtief, will begin issuing offer documents to target shareholders today.

It is understood the improvements referred to include BaFin's request for ACS to seek a capital increase from shareholders.

BaFin had been concerned that ACS would be unable to finance its bid in the unlikely event that all Hochtief shareholders took up the low-ball offer.

ACS has offered an eight-for-five share swap - priced below the prevailing market price - with a view to creeping above Germany's 30 per cent mandatory takeover threshold.

After a four-week offer period, ACS will then be free to gradually buy stock on-market to reach its desired shareholding of just over 50 per cent, allowing it to consolidate Hochtief on its balance sheet and gain effective control of Leighton.

Hochtief last month failed to persuade Australian regulators to intervene on the basis the Spanish group was merely using the bid as an artifice to gain control of Leighton, which contributed about 80 per cent of Hochtief's earnings last year and dwarfs its parent in size.

While Leighton initially followed Hochtief's lead by requesting that the Australian Securities and Investments Commission and the Takeovers Panel intervene, they have since backed off after obtaining a formal guarantee from ACS to preserve its independence if the Spanish company gains control.

"We won't be getting in the road of the ACS-Hochtief play," a Leighton spokesman said. "That doesn't mean Hochtief won't make any other moves, but they haven't spoken to us about it."

Elizabeth Knight Page 6

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Frequently Asked Questions about this Article…

What is ACS's takeover offer for Hochtief and how does it work?

ACS has launched an eight-for-five share swap offer for Hochtief (eight ACS shares for every five Hochtief shares). The offer is priced below the prevailing market price, runs for a four-week offer period, and is designed so ACS can initially creep above Germany's 30% mandatory takeover threshold and then buy shares on the open market to reach just over 50%.

How much of Hochtief does ACS already own?

According to the article, ACS already owns just under 30% of Hochtief prior to issuing the public offer documents.

Why did Germany’s financial regulator BaFin approve the ACS bid and what conditions did it require?

BaFin approved ACS's offer after requesting "significant improvements" to the offer document, which ACS subsequently met. One of the improvements BaFin sought was for ACS to seek a capital increase from shareholders to ensure it could finance the bid if a large number of Hochtief shareholders accepted the offer.

What did BaFin worry about regarding ACS’s ability to finance the takeover?

BaFin was concerned that ACS might be unable to finance the bid if an unexpectedly high number of Hochtief shareholders accepted the low-priced share-swap offer, so it asked ACS to strengthen the financing arrangements (including a capital increase).

How could ACS’s takeover of Hochtief affect control of Leighton Holdings?

Hochtief is the parent and major shareholder of Leighton Holdings. ACS's plan is to consolidate Hochtief on its balance sheet by acquiring just over 50% of Hochtief, which would give ACS effective control of Leighton.

Why did Australian regulators get involved and what was the outcome?

Hochtief sought intervention from Australian regulators—raising concerns that ACS's bid might be an artifice to gain control of Leighton. Australian regulators did not intervene. Leighton initially asked ASIC and the Takeovers Panel to act but later backed off after receiving a formal guarantee from ACS to preserve Leighton's independence if ACS gains control.

What does the article say about Leighton’s importance to Hochtief’s earnings?

The article states that Leighton contributed about 80% of Hochtief's earnings last year and that Leighton dwarfs its parent in size, highlighting Leighton's significance within Hochtief's group results.

What happens after the four-week ACS offer period ends?

After the four-week offer period, ACS will be free to buy Hochtief shares gradually on the market to reach its target shareholding of just over 50%, allowing it to consolidate Hochtief and gain effective control of Leighton.