Hochtief AG (HOT) agreed to sell its airports division to Public Sector Pension Investment Board of Canada as Germany’s largest construction company narrows its focus to building. The stock rose to a 21-month high.
The deal values the business, which has stakes in airports in Athens, Budapest, Dusseldorf, Hamburg, Sydney and the Albanian capital of Tirana, at about 1.5 billion euros ($2 billion) and Hochtief will get 1.1 billion euros as some shares are held by business partners, the Essen, Germany-based builder said today in a statement.
“The price makes it look more like a gift,” said Marc Gabriel, an analyst at Bankhaus Lampe KG. “In the end, there’s not much left for the shareholders, because no extraordinary result was achieved with the sale. OK, they managed to sell it after almost four years, but the price is not sexy.”
Chief Executive Officer Marcelino Fernandez Verdes, who took over in November and comes from Spanish majority owner Actividades de Construccion & Servicios SA, is reversing the German company’s decade-long strategy of expanding into services. Hochtief is also looking into selling its real-estate development, facility and energy-management units.
“You can’t generate much margin with infrastructure and building and you have to take on high risk,” said Bankhaus Lampe’s Gabriel, who has a hold recommendation on Hochtief stock. “That puts a big question mark on whether it will work to completely focus on building again.”
Hochtief rose 5.9 percent to 56.51 euros at the close in Frankfurt, the highest price since July 27, 2011. The stock has jumped 29 percent this year in the best performance on the Stoxx 600 Construction and Materials Index, which has gained 5.8 percent, to value the company at 4.35 billion euros.
PSP Investments, which is based in Montreal, oversees pensions of the Royal Canadian Mounted Police, the country’s military and some federal civil servants. Assets under management as of March 31, 2012, totaled C$64.5 billion ($64.2 billion), including C$3.6 billion in infrastructure.
“We’re gaining exposure to a portfolio of airport assets” with the Hochtief division’s purchase, including management expertise, Mark Boutet, a PSP Investments spokesman, said by phone. “Airports are very resilient businesses. They’ve got attractive cash flow, and we’ve got a long-term horizon in infrastructure, so it’s really a great fit.”
Hochtief predicts full-year pretax profit will be in a range of 600 million euros to 680 million euros, with net income at 180 million euros to 220 million euros, excluding earnings from the airports and one-time reorganization costs, the company said today. Hochtief’s earlier forecast was for net income of 174 million euros to 190 million euros.
The building company will announce any job-cut measures in the “middle of the year,” CEO Fernandez Verdes said today at the annual shareholders meeting in Essen.
First-quarter pretax profit was 123 million euros versus a year-earlier loss of 92 million euros. Earnings exceeded the average 111 million-euro average of three analyst estimates compiled by Bloomberg.
In Hochtief’s failed attempt to sell its six airports last year, bidders including Vinci SA (DG), Europe’s biggest builder, and China’s HNA Group offered more than 1 billion euros for the business, while the German company valued it at as much as 1.6 billion euros, people familiar with the process said at the time.
The transaction with PSP Investments was “the result of a very competitive tendering process,” and Hochtief predicts no significant “extraordinary earnings impact from the transaction,” it said today. The disposal is subject to certain conditions and is expected to close in the second half of the year. Deutsche Bank AG (DBK) advised Hochtief on the sale.
Hochtief, the builder of Frankfurt’s Commerzbank tower, plans to dedicate proceeds from selling divisions to repaying debt, investing in its infrastructure division and entering new industries, the German company has said. Hochtief may pay a special dividend following the disposals, Fernandez Verdes said when presenting 2012 full-year results in February.
“The reason they give for the sales is to bring down net debt,” Gabriel said. “The net debt of Hochtief isn’t really the problem, it’s more the net debt of ACS. (ACS)”
While the 140-year-old company is looking at ways to deepen cooperation with Madrid-based ACS in Asia and North America, it has no plans to expand in China, Fernandez Verdes said today.
“We are trying to avoid risks,” he told shareholders. “The Chinese construction market is dominated by large, non- private Chinese constructors.”
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