Opportunity amidst adversity

The €700m takeover bid for Portuguese toll road operator Brisa is a classic example of how long-term investors can profit from a bad moment in a company’s history.

There are many fascinating layers to the recently launched takeover of Portuguese toll road operator Brisa by Jose de Mello and Arcus Infrastructure Partners (Arcus), the company’s two largest shareholders. But at its heart, the takeover play is a classic example of how to seize the opportunities created by adversity.

Brisa has been harshly castigated by the global financial crisis. At the peak of its powers, in pre-crisis 2007, the company’s shares were trading at €10 in the Lisbon Stock Exchange and a whole era of international expansion beckoned. Then the crisis hit and Brisa was forced to retrench to its home market and cut costs to deal with the effects of falling traffic across its Portuguese network – the company’s breadwinner. 

Last year, Portugal had to be bailed out by the European Union (EU) and the International Monetary Fund (IMF) and Brisa saw its share value wiped out by 50 percent. All terrible news, unless you’re a long-term shareholder trying to take control of what is now a grossly undervalued company with a good set of assets – like Jose de Mello and Arcus.

It’s no secret that Portuguese conglomerate Jose de Mello – whose chief executive, Vasco de Mello, heads Brisa – has been wanting to take control of Brisa for years. 

But with or without Arcus’ help, it would never have been able to prize control as cheaply as it may end up doing now, taking advantage of Brisa’s battered share price to offer a measly €2.66 per share – a 13.4 percent premium to the stock’s trading price, but a far cry from the €10 per share Brisa commanded in 2007. 

Of course, that undervalued share price is a big part of why Jose de Mello and Arcus want to take over the company, with the partners making no secret of their intention to de-list Brisa if enough shareholders take it up on its offer. And for the casual shareholder, this may not be a bad time to opt out.

After all, it’s not only declining traffic in a bailed out country Brisa’s shareholders have to contend with: there are also sticky contractual renegotiations with the Portuguese government on the horizon, mandated as part of the EU/IMF bailout. 

The only big potential loser in all of this is Spanish developer Abertis, which owns some 15 percent of Brisa. The de Mello conglomerate has always had an antagonistic relationship with Abertis, famously thwarting a merger with the Spanish company in 2007.

With Abertis recently indicating it wanted to raise its stake in the company, Jose de Mello moved in for the kill and cheque-mated Abertis: either cash out at €2.66, way below what Abertis knows Brisa is worth in the long term; or stick around as a significant minority investor with little chance of ever gaining control of the company. 

As Vasco de Mello dryly quipped at the takeover announcement: “If Abertis does not want to sell at this price it is welcome to keep its stake [in Brisa].” Of course, Abertis may also choose to offer a counter-bid, but sources close to the Spanish company indicate this is the least-preferred option.

Brisa’s shareholders may have had their fair share of bad moments ever since the crisis broke – and, indeed, the road ahead looks far from smooth. But its two main stakeholders are showing how to manage a slump in a long-term asset, and in the process, giving a master class on how to profit from adversity.