ACS' Hochtief bid raises questions for Presidio PPP

California authorities currently don’t have any reason to believe that ACS’ takeover offer for rival Presidio bidder Hochtief will impact the PPP. That could change if Presidio’s procurement process drags out.

What do you do when you’re in the middle of a procurement process for a big public works project and one of your three qualified bidders launches a takeover offer for another?

It’s a fairly rare occurrence: infrastructure mergers and acquisitions professionals contacted by Infrastructure Investor confessed to never having seen anything like it.

In California, precisely such a situation is raising some big questions for the state’s $1 billion Presidio Parkway public-private partnership (PPP).

The PPP aims to replace Doyle Drive, the Southern access road to San Francisco’s scenic Golden Gage Bridge, with a safer and more modern route. Since April, Spanish developer ACS has been a qualified bidder for the project alongside German peer Hochtief and Spanish competitor Global Via.

Technical proposals for the PPP were due Monday, 13 September. All three bidders submitted technical proposals. Financial proposals, including the maximum annual payment the bidders are willing to accept from the government for delivering the project, are tentatively due 27 September.

But on the morning of 16 September, something unexpected happened. After a string of divestitures, ACS announced plans for a big acquisition: Hochtief. The company told Spanish regulators it aims to buy out the 70 percent of Hochtief it does not already own via a share swap calibrated to reflect the average share price of both companies over the last three months.

For now, timing could well make the bid a non-event for the Presidio PPP. The project is so far along in its procurement that the ACS-Hochtief takeover battle may only be beginning while Presidio selection process is ending.

“We're aware of the reports of potential acquisition,” Mike Bowman, spokesperson for California’s Business, Transportation and Housing Agency, said in a statement to Infrastructure Investor.

“We currently don't have any reason to believe this will impact our procurement since we intend to close this year and transaction talks (between ACS and Hochtief) may continue well past our transaction close,” Bowman added.

The Business, Transportation and Housing Agency is the ultimate procuring authority for the Presidio PPP, which is being offered to the market by agency subsidiary California Department of Transportation, or CalTrans.

Longer term, if Presidio’s procurement drags out, the takeover battle will at the very least trigger some paperwork for ACS and Hochtief. CalTrans made clear in its 176 pages of instructions to bidders that they need to inform it not only when there is a “material change” in the bidding groups’ equity membership but also if there is a “material change” in the equity members’ parent companies’ ownership. Both ACS and Hochtief were equity members in their consortia.

But if ACS’ bid for Hochtief is successful and the two companies are indeed forced to disclose to CalTrans that they are now one and the same, that could raise some other difficult questions. If the two companies merge, do the anti-collusion affidavits they signed still have merit?

If not, the combined ACS-Hochtief entity may well pick the stronger of the two Presidio bids and sacrifice the other. Global Via, the third bidder, would likely have an opinion on how the stronger of the two bidders was decided, which would likely raise larger questions over the fairness of the whole process.

But all that is still off in a distant future that is unlikely to impact Presidio – as long as the project keeps to its procurement schedule.

All of which gives California authorities yet another incentive to bring the historic project – already a survivor of more than its fair share of challenges – to a speedy financial close.