Buy, buy, buy
Feb 8th 2007
Europe's businesses are changing hands at a record rate
THE past two years have seen displays of the best and the worst in European business. There has been a wave of cross-border mergers and acquisitions, reflecting a healthy market for corporate control, robust profits and plenty of cheap credit. It also shows the single European market becoming more of a reality for the service sector. Utilities such as privatised energy companies are at last getting big enough to provide better service and become more profitable. More cross-border mergers mean more competition, to the benefit of consumers.
Mergers and acquisitions in Europe last year were worth $1.59 trillion, overtaking the value of deals in America (at $1.54 trillion), according to Dealogic, a data firm (see map for regional breakdown). Of the top ten deals launched worldwide in 2006 five were European, and of those two were cross-border—e.ON of Germany bidding for Endesa of Spain and Dutch-based Mittal for Arcelor of Luxembourg.
A survey by Morgan Stanley of European finance directors shows that they see mergers and acquisitions as their top priority for this year, so the recent wave of mergers—the biggest Europe has ever seen—is likely to continue through 2007. Last year Britain took the largest slice of Europe's M&A cake, with the value of deals topping $367 billion, ahead of Spain, with $190 billlion, and France, with $174 billion. Since 2004, when the current wave started to build up, the total value of European deals has almost tripled.
But there has also been a surge of economic nationalism as French and Spanish politicians have blocked takeovers of native companies by foreigners. There is some irony in the fact that Britain, which is more sceptical about European integration than most, is the most willing to permit foreign takeovers, thus promoting the integration of the single market on the ground.
France and Spain snap up foreign companies, especially British ones, but when anyone tries to do the same on their home territory their politicians put up the barriers. Italy likes to buy abroad too but closes the shutters as soon as the French or Spanish come looking. Germany, since the high-profile hostile takeover of Mannesmann by Vodafone, is coming round to the idea of foreign takeovers, just so long as the target is not Volkswagen. Recent hostility to cross-border mergers has attracted much negative comment. Paradoxically, though, it may be a reaction to the large amount of M&A that has in fact gone on unhindered.
With full liberalisation of Europe's energy market looming later this year, electricity and gas companies are seeking to become stronger before facing more competition. By contrast, consolidation in banking and telecoms has been relatively slow. There are plainly too many banks that are too weak and small, but national governments are loth to see foreigners moving in on their banks or their telecoms companies. Moreover, the French and Italian governments often retain important stakes in privatised utilities, so the scope for obstruction is vast.
The governor of the Bank of Italy resigned in 2005 after being accused of acting improperly to protect Italian banks from takeover approaches by rivals in the Netherlands and Spain. The Italian government has changed the rules about motorway concessions to prevent a friendly merger between Autostrade and Abertis, so that deal is off. The Spanish government has been doing its best to frustrate the bid for Endesa from Germany's e.ON, trying instead to promote an internal Spanish merger between Endesa and Gas Natural, a smaller local energy company.
But the most assiduous practitioners of “economic patriotism” are the French, with their list of 11 protected sectors designed to discourage predators from even considering a bid. It emerged amid rumours about a bid by Pepsico for Danone, a food group famous for its yogurt products. Again, it took only the hint of a bid for the Suez conglomerate from Italy's privatised electricity company, Enel, for Dominique de Villepin, France's prime minister, to drop his opposition to a long-planned merger between Suez and Gaz de France. Union opposition has since held up completion of the merger.
The gain in Spain
The roof terrace outside the ninth-floor office of Cesar Alierta in the middle of Madrid affords views to the distant hills outside the city. But the personal vision of Mr Alierta, boss of Telefónica, Spain's leading multinational and its biggest telephone company, ranges even further. In the past year he assumed 100% ownership of the biggest mobile-phone company in Latin America, Telefónica Moviles, integrating it into Telefónica. In Europe he has also integrated O2, originally BT's mobile-phone offshoot, which Telefonica bought in 2005. In the first nine months of last year his company's net profit was up by 59%.
With 196m customers in Europe and Latin America, Telefónica is now the fifth-largest telecoms company in the world and the leading firm in Europe supplying both fixed and mobile services. Having conquered Latin America and secured its place in wider Europe, Telefónica last year tried for a bigger role in China, aiming for a 25% stake in PCCW, a Hong Kong telecoms company. Faced with local opposition, it had to make do with 8%.
But elsewhere Spain seems to be unstoppable. Its main hunting ground has been Britain, where Spanish companies have spent more than $55 billion in recent years, according to calculations by Thomson Financial, a data provider. The prey have been energy, utility and infrastructure firms. Many Britons now phone, bank, travel by Tube, fly out of an airport, run a tap or flush the toilet courtesy of Spanish enterprise. The first deal was when a Spanish bank, Banco Santander, which at the time was little-known, swooped on Britain's sixth-largest bank, Abbey. The latest deal in the works is the €17.2 billion bid by Iberdrola, a Spanish electricity company, for Scottish Power, a utility that includes nuclear, hydro and wind power in its portfolio.
The highest-profile Spanish deal of all, launched last year, was that of Ferrovial, a construction company, for BAA, the company that owned the three main airports serving London—Heathrow, Gatwick and Stansted—and six others. Having offered £10.3 billion ($20.2 billion), Ferrovial fought off a counterbid and persisted despite the announcement in mid-battle that the British government's competition commission would investigate BAA's monopoly with a view to breaking it up.
These airports are widely seen as a goldmine because price control on user charges is lax and the terminals offer huge opportunities for the development of lucrative retail parks. Spain's Abertis owns three other British airports, Luton, Belfast and Cardiff. Back in 2003 Ferrovial had grabbed an earlier stake in Britain's transport infrastructure when it bought a services and project-management company, Amey, which owns two-thirds of the Tube Lines consortium responsible for running the network (not the trains) on London's Jubilee, Northern and Piccadilly Underground lines.
So why is Spain emerging as such a successful predator? It has done well out of generous European Union aid since it joined the EU in 1986. Its economy has notched up an impressive average annual growth rate of 3.8% over the past ten years when the rest of continental Europe has lagged behind at around 2.1%. Membership of the euro, says Mr Alierta, has also facilitated cross-border deals. And the latest generation of Spanish business leaders has been educated in the ways of Anglo-Saxon capitalism at American universities rather than imbibing vintage mercantilism at some French grande école.
There are two further reasons behind Spain's foreign expansion. One is a special law that allows companies to offset against tax 30% of the goodwill costs of any foreign corporate purchase. Goodwill means the difference between the book value of assets and the actual price paid. This allows Spanish companies to outbid others. The second reason is that Spain's resurgence has been narrowly based on an inflationary boom in property, construction and banking. When that boom busts, the gain in Spain will turn mainly into pain.
Spanish capitalism, for all its new-found foreign elan, is still a clannish affair, with banks holding locking stakes in companies and firms holding cross-shareholdings in each other, which limits the proportion of shares that float freely. A handful of leading business families—Entrecanales, March, Kaplowski and Perez—call the shots. The intriguing question is whether the new conquistadores have borrowed and paid too much, or whether their new portfolio of (largely) British steady earners will save them from the worst when Spain itself turns sour.
Tambieén se habla mucho del tema en españolo:
http://www.elmundo.es/mundodinero/2007/ ... 35925.html
