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The tide appears to be starting to turn for Atlantia [BIT:ATL] in its takeover battle with Hochtief [FRA:HOT] for Spanish infrastructure company Abertis [BME:ABE], said four sources familiar with the situation.

The Italian toll-roads operator’s unsolicited bid for Abertis has run into choppy waters as two Spanish ministers have publicly flagged concerns about the deal, as reported. The government has been split on how to handle the issue, with the interventionists appearing to hold the upper hand, this news service reported in December.

The political pressure appears to have lessened in recent weeks, said the first source. Atlantia’s camp feels like it is winning the argument that it would be unfair to block its offer, said the source.

A local newspaper reported earlier today (Thursday) that the Council of Ministers could approve one aspect of Atlantia’s bid (the transfer of toll roads) as early as tomorrow (Friday). However, a decision on the approval of Abertis’ 57% stake purchase in satellites company, Hispasat, which is a strategic business for the government, will remain pending.

Atlantia has been lobbying the liberal wing of the government in private, said a second source. The Italian company has been lobbying hard behind the scenes, said a Madrid-based banker who is following the situation.

Although it is too soon to say whether the liberal wing is gaining the upper hand over the interventionists, a recent decision by the National Securities Market Commission (CNMV) could indicate that this could be the case, the second source said.

On 9 January, the CNMV maintained its decision to approve Atlantia’s offer document following public criticism from two ministers due to a technical mistake in the process. CNMV chairman Sebastian Abella will need political support if he seeks further administrative roles in the future, which means that the decision was "very brave," the second source said, adding that the government’s liberal wing will have provided him with cover against their interventionist colleagues.

Although Atlantia made a technical mistake by failing to apply for government approval at the same time the CNMV was studying its offer document, the fundamentals of the case remain in its favour, said the third source. There are no technical grounds to justify blocking the deal, this source said, adding that the interventionists will have to bite the bullet sooner or later.

The political situation remains extremely complex, said a fourth source, adding that despite the drama it is important not to overplay the risks. The situation is likely to turn into a standard auction by the time of the sealed envelopes round, the source said.

Both Atlantia and Hochtief’s bids for Atlantia run on the same timetable, with the next milestone being the start of the offer period after the CNMV approves Hochtief’s offer period. If neither side withdraws, both have the right to submit an improved offer in a sealed envelope at the end of the process, as reported.

The Italian company’s bid has friendly intentions, said a person familiar with its thinking. It would be a mistake to frame the situation as a battle between Atlantia and the government, this person added.

Situation resembles poker game

On 7 December, Spain’s Public Works Ministry (led by Iñigo de la Serna) and the Energy, Tourism and Digital Agenda Ministry (led by Álvaro Nadal) issued a joint statement saying that Atlantia should have solicited government approval for its offer, as reported.

Since then, de la Serna seems to be withdrawing from the interventionist camp, leaving Nadal by himself, the first source said. Some ministers have been quietly dropping their hardline stance, agreed the second source.

One way out of the political cul de sac would be for Nadal to find ways to save face, said the first source. Unfairly blocking the deal would have negative consequences for Spain within the European Union (EU), this source said.

At the moment, though, the situation resembles the mid-point of a poker game, the second source said. It is too early to say who is bluffing, this source said. Threats and bluffs are part of the game, said the fourth source as well.

The liberal wing of the government, led by Economy Minister Luis de Guindos, is making less noise in public, but it is acting as a counterweight to Nadal and the interventionists, said the second source. De Guindos is seeking a seat on the board of the European Central Bank (ECB), as reported.

Abertis’ 21.6% shareholder La Caixa has been taking a passive role in the political situation, said a fifth source familiar with the situation and a second banker. The banking foundation isn’t actively lobbying for a level playing field, said the fifth source, adding that the situation remains very likely to be resolved in the envelopes round.

La Caixa has a weaker position than it would like due to the Catalan situation, said the second Madrid-based banker. - "It can't stick its neck out," this banker said.

The foundation had to move its fiscal headquarters to Palma de Mallorca from Barcelona (the capital of Catalonia) in October as a regional push for independence came to a head. At the same time, its affiliate CaixaBank [BME:CABK] – formerly Catalonia’s largest bank – moved its headquarters to Valencia.

The Catalan situation has made the political situation messier than it otherwise would have been, said the fourth source. Abertis itself also moved its fiscal headquarters to Madrid from Barcelona in October.

The regional government of Catalonia – a rich region in northeastern Spain – made a symbolic declaration of independence in October after convoking an illegal referendum that was boycotted by unionist voters. The central government in Madrid responded by cancelling the region’s devolved powers and convoking new elections, while several separatist leaders were imprisoned. The separatist block won a majority although it lost the popular vote, and is trying to form a government, as reported.

Spokespeople for Atlantia, La Caixa and the Energy Ministry declined to comment.

The prospect of a counter offer for GKN [LON:GKN] is hindered by a lack of buyers for the whole group, although there may be parties interested in its aerospace and auto businesses separately, according to three sector bankers.

The aerospace and automotive group’s board has this month repeatedly spurned an unsolicited approach from turnaround specialist Melrose [LON:MRO].

A number of different parties have made contact with GKN to register their interest, in light of Melrose’s approach, a source close to the situation said. The source did not specify whether any of these parties was interested in GKN as a whole, but the company has not confirmed that it is in talks with any third parties or has received any further approaches following Melrose's unsolicited approach.

The trend in the industry has been toward de-conglomerating and there are not many companies that would want GKN’s mix of aero and auto businesses, said two of the bankers.

Many industrial conglomerates are in the process of, or have concluded, restructuring and spinning off non-complementary divisions, including General Electric Co [NYSE:GE], Siemens [ETR:SIE], Autoliv [STO:ALIV-SDB] and Delphi [NYSE:DLPH].

GKN has been considering a break up for years, but it would be very complicated to split the group, particularly in light of the pension deficit, according to the first banker. The company is likely to have concluded that it would not have remained independent for very long following any split, he added. If the aerospace division was sold, then GKN would be where it was 10 years ago - a pure play automotive business.

The pension liability is a big uncertainty and increases deal risk for potential buyers, a second banker agreed. In a statement, the pension trustees highlighted the aggregate deficit on a gilts flat basis of GBP 1.1bn, or GBP 1.9bn on an aggregated deficit on a solvency (or s75) basis.

GKN is looking to push ahead with its own plans to separate the company’s two main divisions – aerospace and automotive. The Redditch, UK based group refuted Melrose’s claim that it was seeking a “hasty break-up”, however, stating that the timing of a separation would be determined by the most cost effective scenario.

But, neither GKN nor Melrose are likely to split up the aero and auto divisions in a hurry, said the second sector banker.

If such a split were to happen, buyers may emerge for GKN’s businesses, the first and second sector banker said. ZF Friedrichshafen AG and BorgWarner Inc [NYSE:BWA] are potential buyers for GKN’s automotive division, the first sector banker said.

Spirit Aerosystems [NYSE:SPR] is a potential acquirer of the aerospace division, the three bankers said, with the third also naming United Technologies Corp [NYSE:UTX] as a potential buyer.

Melrose would have limited scope to compete with a rival strategic buyer should one emerge, due to its disciplined investment approach, noted the first banker.

Private equity group Carlyle is also rumoured to be interested, according to news reports. Onex is another potential PE buyer, added a fourth banker.

A future separation of GKN by potential buyers would have tax implications and would partly determine the price buyers are willing to pay, noted the first sector banker.

Buyer Commitment

GKN has been on Melrose’s radar for 15 years, according to a person familiar with the turnaround group.

Melrose has said it plans on selling GKN’s powder metallurgy business once it has been improved. Given that Melrose is not using a leveraged financial structure, the company will wait until it turns around the metalluargy business to drive a higher valuation in a sale, the second banker elaborated.

Melrsoe has a great track record of tidying up businesses like GKN, this banker said, adding that its bid was a typical case of Melrose opportunism.

Melrose monitors all UK -isted industrial companies, paying particular attention to those that have made missteps, the first sector banker said.

GKN issued a profit warning in October, citing pricing pressure and challenges in its aerospace division, and followed up that a month later by ousting its nominee for chief executive even before he had taken up the job.

On 17 January, GKN’s newly appointed CEO Anne Stevens said in a statement that the company was “actively engaging shareholders to explain how our transformation plan will provide value.”

But a shareholder who met the company last week said that little detail had been provided on the execution of that plan.

Alongside the appointment of Stevens as permanent CEO and news of its plans to separate the two main divisions, GKN also announced in recent days a two-year transformation programme to improved cash and profit.

GKN and Melrose declined to comment