DealTalk: Hochtief’s ACS defence not Qatar’s motive

By Amran Abocar and Edward Taylor

DUBAI/FRANKFURT (BestGrowthStock) – For all the talk of Qatar riding to the rescue of ACS (ACS.MC: ) bid target Hochtief (HOTG.DE: ), the German construction group may find the Gulf state’s end game is not as friendly as it first seemed.

Although Qatar jumped on a 9.1 percent stake in Hochtief at a bargain price, that does not necessarily mean the emirate has sided with its management, a banker close to Qatar said.

“It’s primarily a value play, and diversifies Qatar’s investment portfolio. It is also a way to secure partnerships for local construction companies,” the investment banker, who declined to be named, told Reuters.

Qatar might be just as happy working with an enlarged Hochtief/ACS combination as with Hochtief on its own.

And it is not as though construction is a new sector for Qatar to invest in. It bought a 6.5 percent stake in Hochtief’s French peer, Vinci (SGEF.PA: ) for $1.69 billion in 2009.

“Qatar is looking to bring best in class companies to build its infrastructure and urban development through ownership stakes in major prominent companies,” said Shehzad Janab, asset management and advisory head at Daman Investments in Dubai.

So far, Qatar’s game plan appears to fit with the way other Gulf funds have operated in Europe.

“With sovereign wealth funds, it’s always uncertain what their primary motivation to do a deal is. My experience says that commercial and strategic rationale often gets preference over political aspirations,” Khuram Maqsood, a former investment manager in a Dubai-based Sovereign Wealth fund, said.

And on a purely financial basis, the move is already paying off for Qatar, which has made a paper profit of 14 percent on its acquisition. Hochtief shares are trading at around 65 euros ($87.20), against the 57.114 euros per share paid by Qatar.

That investment could well improve further. Expectations for Hochtief’s value have jumped since ACS’s September all-share bid and last week’s entrance of the Qataris.

Southeastern Asset Management, which holds stakes of just over 5 percent in both ACS and Hochtief, has protested at the price paid, arguing Hochtief shares are worth 95 euros.


“The investment is part of a trend in which some of Qatar’s foreign investments are focused on gaining returns as well as acquiring stakes,” Rachel Ziemba, senior research analyst at Roubini Global Economics in London, said.

Qatar has already shown it is willing to enter corporate minefields in order to get a significant holding in trophy assets and a return where others feared to tread.

Last year it bought 10 percent of Porsche Automobil Holding (PSHG_p.DE: ) for $9.98 billion and a 17 percent stake in Volkswagen. The two carmakers are going through one of the most complex merger attempts ever seen in Germany [ID:nLDE5BH1DN].

Qatar may want to increase its stake in Hochtief, but the stand-off between the German group and its Spanish shareholder could make that tricky.

“For the right price they may potentially raise (the) stake, although given the current competing interests (it) maybe difficult in the forseeable future,” Daman’s Janab said.

But like other Hochtief shareholders, Qatar may benefit from holding on. According to Thomson Reuter’s StarMine data, 11 out of 16 analysts rate the German group a “buy” or “strong buy.”

The jewel in its crown is Australia, but its diversified portfolio also make it attractive.

“Hochtief’s Australian unit Leighton is a main appeal for ACS and Qatar,” NordLB analyst Heino Hammann said.

But with Qatar looking to spend an estimated $100 billion over the next five years to build the infrastructure necessary to host the football World Cup finals in 2022, Hochtief is widely expected to pick up some of the related contracts.

(Additional reporting by Philipp Halstrick, Josie Cox and Dinesh Nair; Editing by Alexander Smith)

DealTalk: Hochtief’s ACS defence not Qatar’s motive