jebmo’s posthaven

Abertis (OTCPK:ABFOF) (OTCPK:ABRTY) is a global toll roads operator listed in Euros in Spain. The group maintains and operates under concession contracts major highways and other toll roads infrastructure. It is present mostly in Spain, France, and South America. It has always been a dividend-play, and it is currently expected to pay 90c in dividends in 2018, which represents a 4.8% dividend yield.

Atlantia [BIT:ATL], a major Italian toll roads operator, has offered for Abertis on May 15, 2017, Eur 16.5 in cash per share or 0.697 of Special non-transferable Atlantia shares, worth Eur 18.68 today. Abertis shareholder can opt for either cash or shares.

A couple of months later, Hochtief (ETR: HOT) a German infrastructure player, has made a competing offer of Eur 18.76 in cash or 0.1281 regular, liquid, transferable shares of Hochtief, worth Eur 18.67 today. Hochtief is owned by ACS [BME: ACS] (OTCPK:ACSAF), a Spanish construction group. For soccer fans, the President and controlling shareholder of ACS is Florentino Perez, also owner of Real Madrid, the well-known football club where Ronaldo plays. Hochtief management has made it clear that their offer does not include any dividends that Abertis might pay in the future. If you add the upcoming early April dividend to this offer, the Hochtief cash option is currently worth Eur 18.67 + 0.45 = Eur 19.02. This is already above Abertis share price.

Essentially, what happened here, is that the Spanish government wasn`t too happy with a big company such as Abertis not being in Spanish hands anymore, and found a Spanish player that could put together a competing offer. JPMorgan (NYSE:JPM) has been leading the financing for Hochtief.

Note that both offers are extremely accretive to EPS for both the buyers as they finance themselves with new debt with interests between 2% and 3%. Abertis earnings yield (the reverse of the P/E ratio) is around 5%, around double the cost of interests. Analysts think that a successful offer could boost Atlantia's earnings by roughly 30% in the coming years, and Hochtief accretion to EPS is similar.

Atlantia has not replied to Hochtief offer yet, because such offer is now in the hands of the CNMV, the Spanish regulator of the financial markets, which is expected to approve it in January. Once Hochtief is officially approved by the CNMV, Atlantia can raise its offer. Atlantia`s management has indicated in meetings with investors and to several media sources that they are willing to increase their offer, in particular, the cash component, and that they are likely to offer regular liquid Atlantia shares for the stock option of their offer instead of non-transferable shares as they did initially. It is widely expected that Atlantia will offer at least Eur 19 per share, maybe Eur 19.5 per share.

There is one more relevant twist to this story. The Spanish government is arguing that Atlantia needs the government`s authorization to buy Abertis. Atlantia argues it does not need such authorization but agreed to ask for it as a gesture of kindness and goodwill to the local government. There are no legal grounds for the Spanish government to require such authorization as within the European Community reciprocal investments are allowed. Regardless of how far the Spanish government wants to bring its disagreement, it cannot prevent Atlantia from increasing its offer. Atlantia will likely increase its offer to both win the bid war and increase the pressure on the government for it not to intervene in the situation. In fact, Caixa, a Spanish bank, owns over 20% of Abertis, and has made it clear that it would like to cash its stake at the highest possible valuation, and that it has a preference for Atlantia shares versus Hochtief shares should it opt for the stock election.

Conclusion

It is quite rare to find a stock with two strategic bidders that trades below the highest cash offer. In addition, this is a dividend stock with solid and well-known assets behind. The minimum you will make here is a couple of % because of the spread between the cash offer of Hochtief and the current stock price of Hochtief. If, as I believe, Abertis will end up changing hands for Eur 21 because of the competitive tension, you`ll make up to 13% in approximately 6 months. It is extremely unlikely that both bidders will disappear in the coming months.

Finally, if you are not so sure that markets will keep growing and believe that current public markets valuations are quite high, it would be beneficial to add to your portfolio some absolute return such as the one provided from Abertis, so that you keep part of your portfolio repaired from markets moods.

Disclosure: I am/we are long ABERTIS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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