The LBO that never was

You can still see the remnants of the leveraged buyout (LBO) discussions at Abertis in the recently concluded stake sale by Abertis shareholder ACS to European private equity firm CVC Capital Partners.

Originally conceived as a €12 billion buyout of the Spanish developer by its main shareholders – ACS and savings bank La Caixa – and CVC, the initial structure was designed to put CVC on par with principal Abertis shareholder La Caixa (or at least a close second) as one of Abertis’ core shareholders once the buyout of up to 90 percent of its shares was concluded.

As it turns out, CVC got only part of what it wanted through a somewhat convoluted structure. For €1.7 billion, it purchased 15.55 percent of ACS’ 25.86 percent stake in Abertis, leaving the remaining 10.28 percent in the hands of ACS.

Small stake, big votes

However, it obtained 60 percent of the voting rights over the two stakes (the 10.28 percent it didn’t acquire, as well as the 15.55 percent it did) by becoming Abertis’ de facto second-largest shareholder by voting rights. While CVC will only be paid dividends on the 15.55 percent it purchased, its majority control of the voting rights over the two holding vehicles that own close to 26 percent of Abertis will allow it to have considerable influence over the company.

That, in itself, can be seen as a statement of CVC’s intentions regarding Abertis, signalling that it has plans to get a firm grip on the steering wheel driving the Spanish company. Still, the current purchase only gives CVC a minority stake in Abertis, with most analysts seeing the deal as a first step towards further restructuring.

Considering that Abertis’ pre-deal market capitalisation stood at close to €9 billion, it can also be seen as a somewhat expensive first step, putting a 20 percent premium on a minority stake. The ACS/CVC deal effectively values Abertis at more than €11 billion – shy of the €12 billion offer price of the original LBO.

But most analysts think Abertis will now pursue a strategy of divesting its non-core assets, including the sale of its airports and telecommunications businesses, as well as its minority stakes in toll road operators Brisa and Atlantia, which could net its shareholders some €3 billion.

“ACS and CVC have found a shareholder structure for Abertis which allows them to accelerate the disposal of [Abertis’s] non-core assets […] and La Caixa should also support short-term disposals,” one analyst told Reuters.

 And although the intended LBO did not succeed this time around, it might get resurrected once market conditions improve: “They probably have a tacit agreement with La Caixa. [The CVC stake purchase] could be a first step, and when the market is better, La Caixa can join in a leveraged buyout,” added another analyst.

In the end, it’s the planned LBO and the consortium’s unsuccessful attempts to raise some €8 billion in bank debt that steals the limelight from the actual deal.

At one point, the mega-buyout had between 14 to 20 banks looking at funding it before the amount requested became impossible due to liquidity constraints and the banks’ wariness of being exposed to the troubled Spanish economy. Efforts to secure a smaller debt pile of some €5 billion proved equally unsuccessful, killing any hopes of a return to the big leveraged buyouts of yesteryear. Only four banks ended up supporting the stake sale with €1.5 billion in debt.

As one commentator adroitly put it: “We have to create a new category for this type of transaction. Perhaps we should call it a ‘sighed’ LBO, since the private equity firm does not end up getting control, there is no buyout and the bank financing falls short of what was intended. Or we could probably call it a phased LBO, waiting for better days.”