ACS/Hochtief

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Laws sometimes have unintended consequences. The German takeover law, for example, is letting Spanish construction company ACS gradually win control of Germany’s Hochtief without paying the usual premium. But some laws work as planned. Disgruntled Porsche investors have failed to extend American law in unintended directions.

ACS, which had previously built a Hochtief stake of just shy of 30 per cent, was able to launch a low-ball, all-share offer for the group in September, thanks to the minimalist bid level required by the law – the average share price over the preceding three months. Now that it has more than 30 per cent, it can buy a further 20 per cent in the market. The control will enable it to consolidate debt-free Hochtief, bringing relief to its own debt-laden balance sheet.

This prospect is galling to Hochtief shareholders, who ordinarily would receive a control premium. But ACS has acted by the German law-book, which was ostensibly designed to protect bid targets’ shareholders. To be sure, they should have seen ACS coming: its modus operandi is well-honed. Ask minorities in Spain’s Dragados or Unión Fenosa.

Porsche hoped to take advantage of another oversight in the German law; the luxury carmaker used financial engineering to build up a big stake in larger rival Volkswagen. The planned takeover went haywire, but not before burning some short-sellers of VW – the disclosure of the Porsche position led to breathtakingly sharp short squeeze in VW shares.

If Porsche or VW were American, the law would probably have thwarted Porsche, and saved the short-sellers. So these investors sued in the US, asking for US law to be applied to the German situation. Last week a federal judge dismissed their case. Perhaps they should ask ACS how to make German law work to their advantage.

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