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Spain's ACS Moves To Fix Hold On German Builder Hochtief

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Benefitting from lax German laws on hostile corporate takeovers as well as a lack of government resistance to foreign acquisitions, Spanish construction firm Actividades de Construccion y Servicios SA edged closer to taking majority control of Hochtief AG, Germany's largest construction group, before Hochtief's May 12 shareholder meeting. Herbert Luetkestratkoetter, CEO since 2007, will resign, a step he announced on April 11. CFO Burkhard Lohr will leave in October. Frank Stieler, a former Siemens executive who runs Hochtief's European business, is backed by ACS and will be Hochtief's new CEO.

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ACS Chairman Florentino Pérez says the play for Hochtief is “the most important strategic maneuver undertaken by our group in recent years.” ACS became Hochtief's largest shareholder in 2007, when it bought a 25% stake for $1.26 billion; as of April 11, that increased to 42.6%, when ACS bought up Hochtief shares in the open market after the German firm rejected an ACS buyout offer in February. Hochtief officials “fail to comprehend” how “a possible consolidation of Hochtief by ACS could also improve Hochtief's competitive position,” ACS told shareholders.

Hochtief tried to fend off ACS's bid by issuing seven million shares in December to Qatar Holding LLC. This move gave the sovereign wealth fund a 9.1% stake, diluting ACS's share value and making its effort to secure a majority stake more expensive. But Qatar Prime Minister Sheikh Hamad bin Jassim bin Jabr al-Thani has refused to be drawn in, urging a “friendly merger” between the two firms.

ACS plans to raise its stake to just over 50%, fueling fears the debt-ridden Spanish firm may break up Hochtief and sell off units to raise cash. Its U.S. holdings include Turner Construction, Flatiron Construction and E.E. Cruz. ACS reported its 2010 net profit was down 32.6% from 2009. Hochtief reported a 50% hike in net profit last year and a 34% backlog increase. A European banker familiar with both firms likened ACS to “a giant hedge fund with huge leverage that seems to use M&A as an exit to crystallize value.”


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