Hochtief seeks Australian defence against ACS

Hochtief is looking to the Australian Securities and Investments Commission (ASIC) to help block a hostile takeover from ACS. It is applying to the regulator to force ACS to offer to fully acquire Australian affiliate Leighton if it is successful in taking control of Hochtief.

Hochtief currently holds a 54.4% share in Leighton, which has a market capitalisation of AU$ 10.3 billion (US$ 9.92 billion). If ACS were to be forced to fully acquire Leighton once it had taken control of Hochtief, its acquisition costs would skyrocket.

The current proposal from ACS is to acquire just over 50% of Hochtief by means of a share swap. It already has a 29.98% stake in Hochtief, which it bought for cash in two stages in 2007 and 2009.

The latest offer from ACS, announced last month is for an 8-for-5 share swap, which is to say it is offering to exchange eight ACS shares for every five Hochtief ones. In order to gain a majority stake in the company, ACS would have to issue about € 880 million (US$ 1.2 billion) worth of new shares, based on Hochtief's current market capitalisation of € 4.4 billion (US$ 6.1 billion).

Under German law, once ACS' shareholding in Hochtief breaks the 30% mark, it is obliged to make an offer to fully acquire the company. However, if this offer were rejected, ACS would be free to buy as many shares as it liked on the open market. This seems to be its strategy behind the all-share offer, which at current market prices does not represent any premium for Hochtief shareholders.

However, if ACS was also forced to fully acquire Leighton it would cost at least AU$ 6.06 billion (US$ 6.0 billion) at current market prices to buy the remaining 45.4% in the company. ACS would have to add a substantial premium to this to make the offer attractive enough to existing shareholders.

The decision as to whether ACS would be forced to fully acquire Leighton is at the discretion of the ASIC. However, it is not clear whether under Australian law there is a requirement for a 'downstream offer', should ACS' acquisition of Hochtief go ahead. Even so, by launching its application to ASIC Hochtief has bought itself several weeks to build its defence while the matter is deliberated.

Although Hochtief has made little public comment about the bid from ACS, the offer was made without consultation with either of Hochtief's Boards, and is viewed in hostile terms by its management.

A meeting of Hochtief's Supervisory Board on 4 October reiterated its support the management's rejection of the offer. "We share the Executive Board's assessment of the announcement by ACS and emphatically support its efforts to protect the interests of Hochtief AG, its shareholders and its employees," said Supervisory Board chairman Detlev Bremkamp.