Ferrovial ups holding in Budimex
The takeover of construction firm Budimex by Spain's Ferrovial was all but completed last week as two of the Polish company's existing strategic investors pulled out completely and a third reduced its stake.
Analysts estimated that Ferrovial now holds 42% of voting rights and 52.92% of shares in Budimex after U.S. investors Baupost Group and Templeton Direct Advisors sold their stock to Ferrovial subsidiaries and Kredyt Bank reduced its shares to 5.67% from 9.5%, and votes to 22.43% from 25.46%. "It was the best chance to sell off what were portfolio investments," said Pawel Puchalski, an analyst at Raiffeisen Capital & Investment Polska. He said that within the last year Budimex's price has risen 100%, and that Ferrovial has been buying the stock at zl. 42 per share, a record high.
Ferrovial's takeover comes hot on the heels of Swedish firm Skanska's purchase of Budimex's main rival Exbud. Until recently the construction sector had held out against foreign buyouts, but strategic investors are now seen as increasingly necessary for providing expertise and financing.
While Skanska has permission to buy a 75% stake in Exbud, Ferrovial will settle for 49.9% to retain Budimex's Polish status, said Andrzej Kasperek, an analyst at Erste Securities Polska. He said this would dispense with the costly procedure international builders go through to purchase Polish real estate. In contrast, Skanska's purchase followed a very public boardroom battle within Exbud and Skanska paid a premium to ensure total control.
Budimex's share price plunged 13.3% last Thursday to zl. 33 from the beginning of the week. Analysts said small investors fled the stock after realizing Ferrovial had completed the lion's share of its takeover and would not make a public bid for Budimex stock.
Under Polish securities law, any company wishing to buy more than 10% of votes within 90 days in a publicly traded stock must first launch a public bid. The stock is fixed at a rate no lower than the average it has traded at over the preceding six months, but the price can go much higher, Puchalski said.
Ferrovial has not made a public bid, instead buying Budimex stock via subsidiaries that hold less than 10% of votes each. In doing so, it has paid a very reasonable price for one of Poland's most promising companies, analysts said. Last year Budimex's sales rose 33.3% over 1998 to zl. 1.6 billion ($410.3 million), while net profit shot up 117.5% to zl. 41.1 million ($10.5 million).
If it had made its bid public, the benchmark would have been fixed at zl. 28 and "no one would have answered the call at that price, it's a joke," Puchalski said. Moreover, "zl. 42 is not a small price to pay compared with the European construction sector."
In addition, the Securities and Exchange Commission (KPWiG), which launched a probe into Ferrovial's takeover two weeks ago, is unlikely to find the firm broke the law in purchasing through its subsidiaries. "There are no provisions which would say that an acquisition by a subsidiary is an acquisition by a parent," said Marek Szydlowski, a securities lawyer at legal firm Cameron McKenna. "It's within the letter of the law but probably against the spirit of it."
Puchalski said that so far no information is available as to which Ferrovial subsidiaries have been purchasing Budimex stock.
And the Spanish firm added another string to its bow last week when Budimex fought off a takeover of Budimex holding Dromex, by Strabag, a subsidiary of Ferrovial rival Bau Holding, said Rafal Jankowski, an analyst at CDM Pekao Securities.
"Ferrovial killed two birds with one stone" by getting hold of Budimex and Dromex in one fell swoop, he said.
Dromex, Poland's largest road construction firm, in 1998 suffered losses of zl. 50 million ($14.2 million) in receivables after Libyan clients did not pay. But its involvement in the development of Poland's A2 and A4 highways, among other projects, ensures favorable returns this year, Jankowski said. This year its net profit is forecast at zl. 20 million ($4.9 million), up 53.8% on 1998, and the company predicts sales of zl. 550 million ($141 million) in 2000, he said. It is also expected to recoup zl. 25 million ($6.1 million) from Libya, he said.
Strabag ran out of time in providing administrative documents necessary to purchase a controlling stake in Dromex from investment funds Handlowy Inwestycje and Emerging Market Growth Fund, analysts said. But Budimex had the right of first refusal and after Ferrovial's buyout would never have allowed the Austrian firm to take control, Puchalski said.
