ACS hopes pinned on Hochtief

As Spain’s debt-ridden ACS consolidates control over Germany’s troubled Hochtief, thousands of shareholders await the next chapter in this remarkable story of intertwining fates.

With the appointment of Marcelino Fernández Verdes as the new CEO of Hochtief came the consolidation of a chain of command among a cluster of companies that together have a stake in almost every major construction market in the world.

And because they are all in varying degrees of trouble, many thousands of shareholders are waiting to see what he will do.

Verdes replaced Frank Stieler in November. It was a significant change because Stieler, 53, who had agreed to an early termination of his contract, was the last board member from the days before Hochtief was owned by Spain’s ambitious, unpredictable and debt-burdened Actividades des Construcción y Servicios, or ACS.

ACS finally completed its take-over of Hochtief in 2011. The iconic, Essen-based firm’s last stand failed at the end of November 2010 when the German regulator BaFin found no objection to ACS upping its 29.8% stake in Hochtief to 30%, after which it was free to acquire a controlling stake.

The prize for ACS, which was over-reliant on Spain’s moribund domestic construction market, was Hochtief’s thriving worldwide business. Key to this, in turn, was Australia’s Leighton Holdings. At the time, Leighton, 54.5% owned by Hochtief, was a golden-egg-laying goose for the German company. Leighton’s successes in the Asia-Pacific region accounted for 84% of Hochtief’s Q2, 2010 pre-tax profit.

Leighton itself tried to hold out against the Spanish usurper. It had operated independently since Hochtief acquired its stake in 1983. On behalf of its 67,000 minority shareholders it appealed to Australian authorities to make ACS commit to an amenable governance regime, to no avail.

l-r: Floretino Perez, Marcelino Fernandez Verdes, Frank Stieler

Now all eyes are on Hochtief’s new CEO. The 57-year-old Verdes is a civil engineer who joined ACS in 1987 and rose to lead a number of ACS group companies, latterly Dragados and ACS Servicios y Concesiones. In April 2012 he was installed as Hochtief’s chief operating officer and he oversaw Hochtief’s Americas division. He is reported to be a close confidant of Florentino Perez, CEO and chairman of ACS.

ACS is struggling after an ill-fated investment, reported to be worth €8bn, in Spanish power utility Iberdrola during the days of the Spanish property bubble. Iberdola’s shares have subsequently tumbled, leaving ACS under a mountain of debt. ACS chairman Perez, also president of debt-ridden Real Madrid soccer club, has cancelled dividend payments until July 2013.

So ACS is pinning its hopes on Hochtief. But Hochtief has had a difficult two years as well. The company reported a surprise second-quarter loss last year, hit by a troubled concert hall project in Hamburg. Its share price has fluctuated dramatically, peaking at more than €76 in April 2011, but plunging to €36 in November 2012 – although the stock has been climbing since Frank Stieler’s departure.

Hochtief has been further weighed down by troubles at Leighton, upon whose board Verdes also sits. Costly delays on two key projects, the Airport Link in Brisbane and the Victorian desalination plant, both now complete, generated about A$2bn in losses.

So Hochtief’s new boss has work to do. He has promised not break up Hochtief, but told journalists in January that the company has a "rough path" ahead in its return to profitability. He said all shareholders would expect the company to pay a dividend, which it did not do in its last financial year.

Verdes’ vision for the group is expected to be unveiled before the end of February, and many will be watching, not least Florentino Perez.

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