Hochtief urges shareholders to reject sweetened ACS bid

By Helen Wright20 December 2010

Dr Lütkestratkötter, chairman and CEO at Hochtief

Dr Lütkestratkötter, chairman and CEO at Hochtief

Hochtief has recommended its shareholders reject a second takeover offer from Spanish contractor Actividades de Construcción y Servicios (ACS), claiming the increased deal still undervalues its stock.

On 15 December, ACS upped its hostile takeover offer by +12,5%, offering nine ACS shares in exchange for five Hochtief shares, valuing the stock at € 64,5 per share, compared to the initial € 55,7 offer.

ACS said the sweetened bid represents a +26,5% premium over a three-month weighted average compared to the 16 September stock price. The offer values the whole of Hochtief at € 4,9 billion, compared to the initial consideration of € 2,7 billion.

But Hochtief has reiterated its rejection of the approach, describing the increased consideration as "also financially inadequate" and recommending that its shareholders continue to hold on to their stock.

"The implicit value of the increased offer consideration does not reflect the fundamental value of the Hochtief stock," the company said, adding that its banking advisors, Credit Suisse and Deutsche Bank, agreed.

"The new offer by ACS still remains below the average of the analysts' assessments according to which the upside target of the Hochtief stock was € 72,80 as of 16 December 2010. The increased offer consideration also remains lower than the Hochtief stock price," the company said.

The initial acceptance period of the offer ends on 29 December, and an additional acceptance period will end on 18 January.

Hochtief's recommendation that shareholders reject the second offer comes as no surprise - the company has resisted the hostile takeover bid since it was first launched in September.

Hochtief made the deal more expensive for ACS on 1 December when it issued new shares in order to sell a 9,1% stake to the Qatar government in on 1 December.

But while the new share issuance diluted ACS's existing shareholding in Hochtief, it also angered its third major shareholder, Southeastern Asset Management, which complained that the new shares were sold to Qatar at a discount price.

And on 16 December, Southeastern boosted ACS's bid by pledging to exchange around half of its stake in Hochtief (some two million shares) for ACS shares, edging ACS's holding in its takeover target closer to the key 30% threshold.

If ACS increases its holding above 30%, German takeover rules allow it to buy shares in the market, meaning it could freely purchase enough shares to increase its holding to above 50% and gain control of the company.

Scott Cobb, principal and head of Europe at Southeastern Asset Management said, "ACS's improved offer combined with our disappointment in the recent actions of Hochtief management, have led Southeastern to the decision to tender roughly 2 million shares at the revised offer price".

Southeastern also holds a 6,5% stake in ACS.

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