Leighton boosts Hochtief's defence against ACS

Australian construction company Leighton Holdings has asked the Australian regulator to force ACS to make a “fully priced cash bid” for the 45.5 percent of Leighton that is in the hands of minority shareholders should it take over Leighton’s main shareholder, Hochtief.
 
Leighton’s request adds further strength to the defence strategy of Hochtief, which had filed an earlier request with ASIC, the Australian regulator, asking it to force Spanish firm ACS to make a bid for Leighton as part of its takeover of the German company.
 
Hochtief is trying to frustrate an “unsolicited” taleover bid from main shareholder ACS to offer eight ACS shares in exchange for five Hochtief shares.

ACS wants to increase its shareholding in Hochtief to just above 50 percent, allowing for full financial consolidation of the company. Based on Hochtief’s closing price on September 15, ACS’ offer values the 70 percent of Hochtief that it doesn’t already own at €2.75 billion.
 
The German company’s plan, now reinforced by Leighton, is to substantially raise the price of a potential takeover from ACS – which currently owns 30 percent of Hochtief – by making the Spanish company bid for Leighton’s minority interests, currently valued at over $5 billion.
 
“For value to be protected for all shareholders, Leighton considers that any ACS bid required by ASIC downstream be a fully priced cash bid for the minority stake which recognises the inherent value of the company, including a premium for control,” said Leighton Chairman David Mortimer. “If such a bid is not forthcoming, then Leighton considers that the only acceptable alternative for shareholders is a guarantee of the company’s independence, market position and operations,” he added.
 
Under Australian law, takeover bids of foreign companies that have substantial interests in downstream companies listed in Australia are exempt from making a follow-on bid for the downstream companies as long as the takeover offer complies with the rules of a stock exchange that is approved by the Australian regulator (which is the case with the German exchanges Hochtief is listed on). Downstream companies are firms in which the takeover target has significant holdings.
 
But while this exception is enshrined in law, the Australian regulator may still override it if it finds that the interests of Leighton’s shareholders are not being adequately protected. Observers have noted that the success of this strategy is partly dependent on ASIC deciding that ACS’ takeover of Hochtief is really just a proxy to acquire a substantial interest in Leighton.
 
In related news, ACS will call on its shareholders to allow it to do a capital increase of up to 50 percent of its existing share capital, or up to €6 billion. The Spanish firm plans to use the capital hike “to increase flexibility in facing any potential scenario that might arise until the successful completion of the proposed voluntary tender offer for Hochtief,” the company said in a statement.

ACS said it plans to use treasury stock to pay for the Hochtief bid and may not need to sell additional shares. If it has to, it plans to make “limited use of this facility,” the company said. A shareholder meeting will take place in Madrid on November 19 to rule on the capital increase.

As a result, though, ACS has requested and obtained an extension from the German regulator on the deadline to submit its bid for Hochtief. The Spanish company now expects the offer to be completed by January 2011.