IBERDROLA, the Spanish power conglomerate that bought Scottish Power four years ago, is again under threat of a takeover. The threat comes from another Spanish firm, Grupo ACS, which already owns a 20 per cent holding in Iberdrola. Any such move would have major implications for the SNP Government’s plans to develop Scottish renewable energy.
ACS is one of Spain’s largest construction companies. But the meltdown in the Spanish economy and property market has forced ACS to seek an alternative source of revenues. To achieve this quickly, ACS has been seeking larger holdings in both Iberdrola and Hochtief, a German construction firm.
ACS won outright control of Hochtief on 12 May, after a bitterly contested fight that led to the resignation of the German company’s Chief Executive, Herbert Luetkestratkoetter, in April. Iberdrola is next in line.
Recently, ACS posted a 31 percent fall in its first quarter profits due to a delay in the payment of a dividend by Iberdrola, underlining the strategic importance of the builder’s investment in the power utiliy.
ACS is already Iberdrola’s biggest shareholder, with an $8bn stake. It has been pursuing a seat on the Iberdrola board but has been constantly thwarted by the power utility.
Last year, Iberdrola’s board, supported by 57 percent of shareholders’ votes, blocked giving ACS a board seat, claiming it represent a conflict of interest because the two companies compete in the energy sector. ACS, though primarily a building firm, also has interests in renewable energy.
There is an intense personal rivalry between Iberdrola’s chairman, Ignacio Sanchez Galan, and the boss of ACS, Florentino Perez, who also owns Real Madrid.
“If they make an offer for 100 per cent of the company, and shareholders accept it, it’s not a problem,” warns Galan. “But if they want to control the cash flow of the company without paying a premium to shareholders, then it is a lot more difficult.”
The big danger in this commercial clash is that both ACS and Iberdrola are funding acquisitions using bank debt. As a result, both firms are highly leveraged and could be hit badly if interest rates shoot up in Spain as a result of the country’s huge public sector deficit. In January, for instance, Iberdrola announced the $2.4 billion acquisition of Brazil’s Elektro utility.
Iberdrola has recently struck a deal with the Qatar Investment Authority to take a 6.2 per cent stake in Iberdrola, in order to have an ally against ACS.
Iberdrola is also examining potential takeover candidates to make itself too big to swallow. One candidate in the frame is Scottish and Southern Energy, according to reports in the Spanish press. However, the Spanish utility already owns Scottish Power, which it bought in 2007 for £11.6bn. However, a move on SSE would raise major questions regarding the potential loss of competition and impact on the consumer.
In a counter move, ACS has put its 1.8GW of renewables assets up for sale, in a move to free it from any legal barriers to gaining a seat on the Iberdrola board. ACS is likely to clinch a seat on the Iberdrola board after July 1, when a legal ruling capping ACS’s voting rights at 10 percent will expire.
Iberdrola’s annual meeting of shareholders takes place on Friday.