Germany at the risk of being raided

Germany is about to lose its biggest construction company to a Spanish rival, making it one of the largest hostile bids in years. Lax German takeover laws are basically inviting foreign companies to take over control.

One strategy to enlarge and enrich a company’s business is to diversify by mergers or acquisitions. However, not all acquisitions are negotiated in a friendly manner. If a takeover attempt is strongly rejected by a target firm it is considered hostile (investopedia). Heavily discussed in the news, Hochtief, Germany’s largest construction company, is currently facing an existence threatening risk of such a hostile takeover.

The issue of risk has recently become a topic of great interest on BraveNewFinance, having Bravenewloock introducing global risk maps, followed by stuerzele’s post illustrating how banks manage risk after the crisis. German company’s additionally have to deal with a different kind of risk, I will emphazise on.

Germany’s regulatory framework for acquisitions imposes a big threat to its public firms. “Hardly any other country makes it so easy and cheap for foreign corporations to acquire domestic businesses.”, an article in spiegel online explains.

Taking this advantage, the highly indebted Spanish construction company ACS, is planning to rebalance its budget on the expense of Hochtief. According to the financial times, the German company not only offers know-how but also a global order portfolio, including lucrative contracts in Asia, the USA and the Middle East.

Hochtief has been trying to fend off ACS since September last year, the spiegel reports. Part of its defense strategy was to launch a capital increase exclusively intended for Qatar, making the sovereign wealth fund the 2nd largest stakeholder and simultaneously diluting the stake of the Spanish rival.“It’s strategy, not an act of desperation.”, CEO of Hochtief confidently said in an interview at this time.

But his defense measure failed and ACS still managed to surpass the crucial 30% threshold, the Wall Street Journal informs. Under German law, holding more than 30% allows ACS to raise its stake up to a controlling share by buying shares on the market and without having to do another expensive takeover offer.

German companies at risk of hostile takeovers

The situation for Hochtief seems hopeless and the question arises: Are German takeover rules too lax as to risk losing companies of key industries to foreign competitors?

Governments in Spain and France, for instance, can impose several restrictions to protect their businesses, the spiegel clarifies. 

Moreover, Hochtief could just be the beginning. Experts claim Germany could be “facing a wave of takeovers”, predicting more than ten German companies to be at risk as they have a low price-earnings ratio and a lack of being a major stock holder. 

ACS’s victory would leave doubt over the future of Hochtief and its employees. Being highly indebted, social responsibility is doubtful.

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2 Responses to Germany at the risk of being raided

  1. olexa5 says:

    Thanks. This article initiated a whole series of research for me, today.

    It would be interesting to know what influence the move from the side of Katar actually had. In the beginging of December one could read that they had bought about 10% of newely issued shares and thus couldn’t prevent the take over for sure, though make it become more expensive for the Spanish.

    In business terms one calls that kind of attempt a ‘white knight‘. Thereby, an investor from the same industry tries to fight off the risk of an aquisition. Sometimes, this can even be initiated by political actors, such as Merkel who approached Katar in the first place.

    The story hasn’t ended yet and Katar still has the opportunity to gain a blocking minority of 25%, though pessimism has spread widely already.

  2. bravenewloock says:

    Great post Vivipre, the Hochtief topic has been high on my agenda of interest for weeks – this is a very new take on things for me, and I am astonished by the view of the Spiegel authors that Germany has to be alert of a wave of take overs and agree with the EU commission’s take on things:

    The single European market has it that every country reaps the benefits provided by it, but also has to cope with th increased competition it brings. Have a look at the EU takeover directive for further info!

    I think that instead of lamentating about the state of things, German companies should in turn adopt a more open and aggressive approach and look for suitable takeover canditates, for example in Spain!

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