x Abu Dhabi, UAEMonday 24 July 2017

German companies are there for the taking (over)

Germany's reliance on exports and free trade makes it difficult for Angela Merkel's government to turn around and intervene in the market to prevent foreign takeovers.

The German government has refused to help Hochtief, the country's largest builder, resist a takeover attempt against it. Adam Berry / Bloomberg
The German government has refused to help Hochtief, the country's largest builder, resist a takeover attempt against it. Adam Berry / Bloomberg

The country's reliance on exports and free trade makes it difficult for Angela Merkel's government to turn around and intervene in the market to prevent foreign takeovers

For sale, at bargain prices: top-flight German industrial companies with strong profits, global business operations and zero debt. No risk of government interference, however hostile your acquisition might be.

The US$5 billion (Dh18.36bn) bid for Hochtief, Germany's largest construction group, by ACS, the heavily indebted Spanish builder, has revealed how vulnerable German companies are to takeovers.

The ease with which ACS has got close to seizing control of its rival will whet the appetite of foreign investors for other blue-chip companies that are ripe for the picking.

Hochtief, a global player with projects in many countries including Abu Dhabi, fought hard to fend off ACS but BaFin, the German financial regulatory authority, gave the green light on November 29 for ACS to proceed with its bid.

The German company's chances of remaining independent appeared to have evaporated, but a glimmer of hope came with yesterday's announcement that Qatar Holding, an investment vehicle of the Gulf state's government, will buy a 9.1 per cent stake. Media reports said the two sides had also reached an agreement for Hochtief to build football stadiums in Qatar for the 2022 World Cup.

It is unclear whether Qatar's stake purchase will suffice to prevent a takeover by ACS. Hochtief's management and the representatives of its 11,000-strong workforce argue that ACS would break up the company and put jobs at risk by selling off valuable subsidiaries.

ACS, which has about €10bn (Dh48.71bn) of debt, insists it will keep the group intact. But it remains to be seen whether the Spanish group would be able to resist the temptation to sell some of Hochtief's crown jewels to repair its own balance sheet.

Crucially, the German government had refused Hochtief's pleas for help in the takeover battle and resisted calls to amend the nation's takeover laws, which are among the most liberal in Europe.

The government of Angela Merkel, the chancellor, believes that a nation as reliant on exports and free trade as Germany cannot afford to resort to protectionism by intervening in the market to prevent foreign takeovers.

The government's hands-off style contrasts with unabashed interference by Nicolas Sarkozy, the French president, and Jose Luis Rodriguez Zapatero, the Spanish prime minister, in proposed takeovers in recent years.

Mr Sarkozy stepped in to stop Danone, the French food multinational, being bought by PepsiCo, the US drinks group, and blocked an attempt by Siemens, the German industrial company, to buy parts of Alstom, a French competitor. Mr Zapatero thwarted a €40bn bid by E.ON, the German power giant, to buy Endesa, the Spanish utility.

Mrs Merkel's refusal to follow their example may be an honourable, free-market stance, but it increases the risk of hostile takeovers of a string of German firms which have little debt, plenty of cash, healthy profits, relatively low stock market values and no large shareholders to block acquisitions.

Germany's takeover laws also make it easier and cheaper for foreign investors to acquire companies.

ACS already had 29.98 per cent of Hochtief and has offered shareholders eight ACS shares for every five Hochtief shares they own. The bid is not particularly attractive but it will get ACS beyond the 30 per cent threshold after which it can just buy up further shares whenever the price dips.

Critics say ACS would be getting Hochtief on the cheap that way.

In many other countries, including Britain, a takeover is far more complicated and more expensive.

Fears of an onslaught of hostile bidders could prompt further German companies to turn to investors in the Gulf states for help. Abu Dhabi, Qatar and Kuwait are held in high regard in German boardrooms as stable, strategic investors who don't interfere in day-to-day business - and who can help to keep unwanted suitors at bay.

business@thenational.ae