TheChek News Flow

Hochtief [FRA:HOT] is mulling selling a number of its own non-core assets as a way of funding its bid for Abertis [BME:ABE] alongside some non-core assets from the target, said two sources familiar with the situation.

The German construction company has already begun talks with potential investors interested in buying its assets, said the first source. Selling some of its own assets is one of the options on the table, this source added.

Abertis, a Spanish toll road company, has to compete with pension funds with a low cost of capital for new concessions, so it does not make sense to sell too many of its existing concessions, said the second source.

However, Hochtief remains likely to sell Abertis’s telecoms towers business Cellnex Telecom [BME:CLNX] and its Hispasat satellites business, this source said.

On the other hand, Hochtief has a number of businesses that might not fit with its pivot to becoming a mixed construction and infrastructure player, the second source said.

One of the more interesting businesses to sell would be its 71% stake in Cimic Group [ASX:CIM] (formerly Leighton), its Australia-based contractor for Asia Pacific, the second source suggested. The company is currently capitalized at AUD 16.32bn (EUR 10.79bn), valuing Hochtief's stake at around EUR 7.66bn.

Another option would be for Hochtief to sell some or all of its North America division, the second source said. The company has four companies in the US and Canada, Turner, Flatiron, E.E. Cruz, and Clark Builders. The division makes public buildings, office properties, sports facilities, educational and healthcare properties, transportation infrastructure, hydroelectric power stations and dams, according to Hochtief’s website.

Hochtief Americas generated EUR 8.64bn in revenues in the first nine months of the year, compared with EUR 6.58bn for Asia Pacific and EUR 1.23bn for Europe.

A third option would be to dispose of the company’s non-core services companies, the second source said. The company has an insurance broking and risk management unit, which provides services to the three regional divisions, according to its website. It also provides re-insurance.

The corporate sub-division generated EUR 81.3m in sales in the first nine months of the year. However, it made a pre-tax loss of EUR 22.7m in the period, compared to profits of EUR 188.6m, EUR 415.7m and EUR 25.9m respectively in the Americas, Asia-Pacific and Europe.

The big advantage in selling construction or services businesses instead of concessions is that Hochtief already knows its own portfolio back to front, said an industry consultant.

In October, Hochtief said that it will need to re-finance EUR 12.44bn in bridge loans if it achieves 100% acceptances in Abertis. The takeover was made possible by fully underwritten debt facilities with an average estimated cost of around 2%, as reported.

At current prices, Abertis’s 34% stake in Cellnex is worth some EUR 1.68bn. Meanwhile, Hispasat provided 5.3% of Abertis’s EBITDA in the first nine months of the year. Its parent company is capitalized at EUR 18.30bn, implying its value could be around EUR 969m.

Abertis owns 57% of Hispasat after the government blocked a deal to increase its stake to 90%. This implies its stake could be worth around EUR 552m. Selling this business alongside Cellnex could raise around EUR 2.23bn.

Red Electrica [BME:REE] has already expressed an interest in Hispasat, as reported. Spain’s State Society for Industrial Holdings (SEPI) owns 20% of Red Electrica, as well as 10% of Hispasat.

The Spanish establishment has been encouraging Hochtief’s main shareholder ACS [BME:ACS], a Spanish builder, to make a counterbid for Abertis in competition with Italian bidder Atlantia [BIT:ATL], this news service reported in September. This followed an offer for Abertis from the Italian toll concession operator in May.

Spanish government support for Hochtief's offer has led to some speculation in the market that there could be a side deal between both bidders, with the German company selling assets to Atlantia in return for its withdrawal from the battle. "People will be exploring that idea," said a third source familiar with the situation.

Abertis is "the ultimate breakup story," said a fourth source familiar with the situation. While Hochtief needs to sell assets to finance its bid, Atlantia is mainly interested in growing internationally, as reported.

For a deal like this to work, the first step would be for Atlantia to realize that it faced a difficult regulatory situation due to political opposition to its bid and make contact with Hochtief, said a lawyer who is following the situation. Such a tie-up would be legal, the lawyer said, adding that the precedent was in 2007, when E.On [ETR:EOAN] decided to withdraw from a contested takeover of Endesa [BME:ELE] in return for buying assets from rival bidder Enel [MIL:ENEL] on completion of its offer.

Despite the precedent, the lawyer and the first source were skeptical about whether or not the deal could be done in this case. This is because Hochtief will be more interested in selling construction assets than concessions, while Atlantia is a pure-play toll-road business, as reported.

Spokespeople for Hochtief, Atlantia and Red Electrica declined to comment.