MILAN (Reuters Breakingviews) - Abertis’ bidders may have a way to avoid becoming M&A roadkill. Italy’s Atlantia and Spain’s ACS are mulling a breakup of the Spanish group, newspapers Expansion and El Confidencial reported on March 8 – instead of each bidding against the other. It would nix the idea of a pan-European global leader. But it would be politically easier, and remove the very real risk of overpaying.
Atlantia, which was first out of the gate with a 16.5 euro a share offer last May, aspired to become the world’s biggest transport-infrastructure operator. The Italian motorway and airport group’s road to success was blocked in October by an 18.8 euro per share counterbid by German construction group Hochtief. This is majority-owned by Spanish builder ACS, which lists powerful Real Madrid president Florentino Perez as its top investor. To complicate things further, Atlantia faced interference from two senior Spanish ministers, who requested its bid be vetted by the government in Madrid.
An Atlantia triumph looked problematic anyway. A previous attempt to marry the two motorway groups failed in 2006 because of political resistance in Italy. Spanish authorities may have done the same.
The bigger risk was overpaying – as implied by the jumps in the bidders’ share prices and the dip in the target’s on Thursday on news the war might be over. Raising its offer to 19 euros, which Reuters reported last month as one possibility, would have yielded a return on investment of 5.5 percent, barely above Abertis’ 5.3 percent estimated cost of capital, according to Breakingviews calculations and assuming no synergies. Hochtief’s ROI would have not matched the cost of capital, the calculation shows.
In a breakup scenario Spain, which makes up a third of Abertis’ EBITDA, would naturally have to be left to ACS. The Italian bidder, which has just become the top investor in Eurotunnel, could focus on neighbouring France or Latin America, or a combination of both. Taking up French and Italian motorway operations and either Brazil or Chile, where Atlantia also operates, would give it almost exactly 50 percent of Abertis’ 3.5 billion euro EBITDA, and create a 5.4 billion euro player. This seems a fair division of assets to avoid a pricey bidding war.
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