Abertis Infraestructuras (ABE.MC) – Competing M&A Bids – 5%+ expected upside

Current Price – €18.76

Expected Payout – TBD

Upside – 5%+ (expected)

Expiration Date – Q1 2018

Acquisition Announcement (see bottom of the document for English presentation)

This idea was shared by Alex.

 

This is a merger arbitrage situation involving large cap names listed in Europe (all tradeable through IB).

Atlantia and Hochtief are fighting to take-over Abertis – toll road operator with assets in Europe and South America. Currently ABE shares trade at the highest bid of €18.76 (Hochtief) while at the same time another higher bid is expected from Atlantia (previous bid at €16.5) . So seems like an opportunity with no downside (assuming Hochtief does not retreat) and material upside if Atlantia comes back with a higher bid or bidding war continues.

There is also a political angle with some of the government members unwilling to sell strategic Spanish assets to Italian Atlantia – Hochtief on the other hand is majority owned by Spanish Grupe ACS. Yesterday the complain from government members has been rejected by the regulator (CNMV) leaving its previous approval of Atlantia takeover in place. Hochtief offer is still pending CNMV approval. Atlantia’s rebid is expected after the regulator approves Hochtief proposal.

A good overview of the situation by Financial Times, Business Insider as well as recent SA article.

 

Bidding war is expected

Atlantia management communicated a number of times that they intend to continue fighting for acquisition of ABE. An even higher subsequent rebid from Hochtief is also a possibility.

Atlantia, the Italian infrastructure group, has given its strongest signal yet that it intends to raise its €16.3bn bid for Spain’s Abertis in order to thwart a rival offer from Hochtief of Germany and prevail in one of Europe’s biggest takeover battles. “We believe we have room to make our offer adequately competitive, at the right moment, without jeopardising value creation,” said Giovanni Castellucci, Atlantia’s chief executive, in an interview with the Financial Times (Source)

“Several sources said Atlantia, advised by Credit Suisse and Mediobanca, is looking to make a modest increase to Hochtief’s cash and share bid early next year, but it will not call it its “best and final” offer.” The Rome-based firm would then make a knock-out offer at the end of the investors’ acceptance period as part of the so-called “blind bid” contest, they said. “They will keep fighting till the end”, said a source working with one of the parties. “For both companies winning this deal is an absolute priority.” (Source)

“The sources said both bidders were gearing up for this final arm-wrestling contest as they are both in a position to sweeten their bids a few more times. (Source)

“The Rome-based company has had lengthy discussions with banks over its financial capacity and is confident it can significantly improve its 15.6 billion-euro offer, the sources said.” (Source)

 

Risks

My main concern here is that this is a large cap and widely discussed transaction – so ABE share price should correctly reflect the expectations of higher re-bids. As the stock trades at Hochtief’s offer of €18.76, it seems that market expects any re-bids to be incrementally small.

I think the risk of both companies walking away from the deal voluntarily are low.

Regulators could reject Hochtief transaction (e.g. on the grounds that Hochtief is two times smaller than ABE), however lack of discussions on this suggests that approval is expected. In any case even without Hochtief, Atlantia would probably need to increase their offer as they have already openly said that there is scope for further increases.

All of this should leave the downside well protected even if the upside turns out to be immaterial.

Both Atlantia and Hochtief offers have certain portion of consideration payable in stock, however the stock portion is relatively small (10%-15%).

Keep in mind that my track record on special situations for large cap names is quite spotty.