'New Spanish Armada' buy another British firm

[Ferran]

'New Spanish Armada' buy another British firm

28 November 2006

MADRID — Iberdrola agreed to buy Scottish Power for GBP 11.6 billion, making it the latest victim of the so-called 'New Spanish Armada'.

The Bilbao-based utility will pay 777 pence per share in cash and stock for 100 percent of the U.K.'s fifth-largest energy provider, Iberdrola said on Tuesday.

The move follows another bid by German energy giants E.ON whose attempt to buy Scottish Power was rejected.

E.ON is offering EUR 37.1 billion for Spain's Endesa SA, the biggest Spanish energy company.

Buying Scottish Power will give Iberdrola 5.2 million customers and 6,200 megawatts of power-generation capacity in Britain, including wind-driven electricity turbines.

The company also owns part of the U.K.'s transmission grid and distribution network, which is the link that carries electricity from the grid to users.

Scottish Power operates power-generation and gas- storage facilities in the U.S. and Canada.

Iberdrola, the world's largest owner of wind-driven turbines, is trying to add capacity, especially in the U.S., where earlier this year it bought three wind-park developers.

The 'New Spanish Armada' is the name given to the series of Spanish companies which have taken over British ones, including Banco Santander (Abbey National) Telefonica (O2) and Ferrovial (BAA).

[Copyright EFE with Expatica]



Source: http://www.expatica.com/actual/artic...story_id=34668

[Ferran]

The New Spanish Armada

By : Richard Orange
15/11/2006


Airports, telcos, banks,Tubelines: Spain’s 21st century invasion is snapping up every Brtitish company it can grab

It was the summer of 1588 and Tudor England was on the verge of panic. Whispers had begun to reach the Royal Court that Spain, Europe's mightiest economic and military power, was readying an immense fleet of 130 warships -- "La Grande y Felicisima Armada" -- in preparation for an invasion.

Sir Francis Drake's strategic brilliance -- and some awful weather -- saved the day and the Armada was repelled. But if Drake were still among us today, he would be spluttering into his clay pipe: a new Spanish Armada has landed on Britain's shores. This time, to the amazement of the world, the British are welcoming the ships in -- and even inviting them to tea and bowls.

The 2006 Spanish invasion is an Armada of aggressive Spanish companies snapping up every British company they can grab. An expected £12bn ($22bn, E17.8bn) bid by Spain's Iberdrola for Scottish Power will be just the latest assault on our shores.

If it succeeds, Spain will have made more than $55bn worth of acquisitions in Great Britain over the past eight years, according to Thomson Financial. Germany, the second most enthusiastic acquirer of British assets, has managed only $22bn-worth. Spain's 21st century invasion of Britain is astonishing for a country that, until very recently, was still a second-tier European economy.

In the past five years, Spanish companies have scooped up most of Britain's airports and much more:

--The £11bn acquisition by Ferrovial, a construction company, of BAA (which owns Heathrow and Gatwick) this year added seven more British airports to the two, Bristol and Exeter, that it already owned;

--Abertis, another Spanish construction firm, owns Luton, Belfast and Cardiff airports.

--In 2003, Ferrovial bought Amey, which owns 66 percent of the Tubelines consortium, operator of the Jubilee, Northern, and Piccadilly lines;

--In July, Spannish construction group FCC bought Waste Recycling Group for £1.4bn;

--In May Aguas de Barcelona bought Bristol Water for £165m.

--Last year, Spain's former state telecoms company Telefonica bought O2, the former BT mobile phone arm, for £17.7bn.

--Two years ago, Banco Santander (OOTC:BSTNF) started it all with the acquisition of Abbey, Britain's fifth largest bank, for £8.6bn. The Spanish economy has prospered on a steady supply of European Union (EU) money, free market reforms, an inflationary property boom, a relatively small state (the Madrid government will spend just 38 percent of gross domestic product [GDP] next year, against 46 percent in Chancellor Gordon Brown's Britain) and hence much lower taxes. The combination has allowed Spain to power ahead with average economic growth of 3.6 percent a year since 1997. The one-size-fits-all euro zone interest rates have been far too low for booming Spain's needs -- which are higher interest rates to keep the boom in check -- and have triggered a massive house price bubble which will one day burst. But not yet.

So, for the first time in centuries, Spain is once again a wealthy economy and Britain has become the target of its new buying power for the simple reason that it is easier to buy British assets than any other. This has surprised even the Spaniards.

One of the advisers on the Abbey deal says that Santander's president, Emilio Botin, drew up a list of personal meetings he felt essential for arguing his case politically. These included Prime Minister Tony Blair, Chancellor Gordon Brown and the Bank of England. To his amazement, while "the Bank of England was happy to see him," the adviser remembers, "Number 10 and Number 11 didn't really give a hoot." Compare this with the political storm that hit Santander's Spanish rival, BBVA, when it tried to buy Italy's BNL, and the attraction of British assets is obvious.

But the new Spanish Armada also has a secret weapon up its sleeve. Uniquely among European companies, the Spanish can claim 30 percent of the "goodwill" resulting from overseas acquisitions in a tax rebate (goodwill being the difference between the book value of the company bought and the price paid).

This was a crucial element of Ferrovial's victory in the bidding battle for BAA earlier this year. Bankers estimate it that it gives Iberdrola about £1 per share bidding advantage over any potential rivals for Scottish Power. If Iberdrola offers £8 a share for Scottish Power, few either private equity or trade rivals will be able to match it.

Iberdrola, Ferrovial and Telefonica are now rushing to do major international deals because they fear the tax break may be removed. The European Commission has already begun to look into whether it qualifies as state aid.

The deeper reason for the explosion of Spain's companies into international acquisitions lies in Spain's construction-driven economic boom and the way it has disproportionately benefited the country's banks and a small number of well-connected construction companies.

Five out of Europe's seven largest construction companies are now Spanish and the "Big Six" -- Ferrovial, FCC, ACS, Sacyr Vallehermoso (OOTC:SYRRF) and Acciona -- together with Spain's banks and savings institutions, control many of Spain's largest companies.

They are wise enough to realise, however, that the Spanish house price and construction boom will eventually come to a likely nasty end; so they are urgently seeking to diversify into new industries and countries.

Ferrovial has opted for international infrastructure while others have moved into utilities. ACS has taken a 35 percent stake in Spain's third-largest power generator, Union Fenosa, and is trying to build a large stake in Iberdrola. Sacyr Vallehermoso has taken a 9.2 percent piece of Spanish oil giant Repsol.

A new generation of English-speaking, internationally-educated businessmen are now in charge of Spain's companies, replacing the old guard which grew up in the dictatorial days of General Franco. The two who have so far made the greatest stir are MIT-educated Rafael del Pino of Ferrovial, who clinched the BAA bid; and the Eton-educated JosÈ Manuel Entrecanales of Acciona, who has bought a stake in Endesa. (NYSE:ELE)

Says one source close to Spain's new business elite: "The new managers are more cosmopolitan and more international. English-speaking executives have taken over from the older generation."

The list of Iberdrola's past targets is long: Southern Water when Scottish Power put it up for sale; Florida Light and Power in America; and French utility giant Suez (NYSE:SZE) (but the French are more protective of their assets). Add to this its unsuccessful participation in several auctions across Eastern Europe and in the Netherlands, and it's clear that Iberdrola is keen to expand; but it has rarely had sufficient support from its lead shareholders to pay the right price.

This time around ACS, Iberdrola's biggest shareholder, has already given the Scottish power deal tentative support. JosÈ Ignacio Sanchez Galan, who took full control of Iberdrola as both chairman and chief executive in April, also has his own reasons to do the deal.

If Germany's utility giant, Eon, succeeds in its bid for Spain's Endesa, Iberdrola may merge with either Gas Natural or with Union Fenosa, the two other leading Spanish utility. Galan has recently called for changes to Spain's competition laws so that Iberdrola would not be forced to sell a huge tranche of power generation assets if it did such a deal.

But Gas Natural is 34.5 percent owned by La Caixa, dominated by Antonio Brufau, and Union Fenosa is 35.2 percent owned by ACS, which is dominated by Florentino Perez Rodriguez, who also chairs Real Madrid, the famous football team. Galan, a very strong personality, is apparently unwilling to be subordinate to either man.

The banker says: "When they merge with Gas Natural or Union Fenosa, and they bring in one of these large shareholders -- either La Caixa or ACS-Galan wants to be able to dilute this large shareholder as much as possible."

But Iberdrola's bid for Scottish Power has its own strategic logic. Iberdrola's management is widely respected and it owns the most envied mix of power generation assets in Europe.

It combines a baseload of always-on nuclear power with hydroelectric power that can be rapidly adjusted to meet demand; and it has been a pioneer in renewables, including windpower, in which it has expertise relevant to Scottish Power. Scotland has the best wind conditions in Britain; and Iberdrola could save money by merging Scottish Power's American renewables business with its own; it could even participate in the next generation of British nuclear power stations.

Strategically, the move will protect Iberdrola from the giants who dominate Europe's utility market, such as France's EdF, Germany's Eon and RWE, Italy's Enel, and (potentially) France's GDF-Suez. If smaller companies such as Scottish and Southern Energy, Centrica, Iberdrola, Union Fenosa and the Dutch and Scandinavian utilities are to survive, they need to combine.

But at 800p, Iberdrola would be paying too much for Scottish Power. Dresdner Kleinwort values the company at 590p. Eon, which has far deeper pockets, walked away from merger talks last year because Scottish Power wanted more than 580p.

Given what's happened to power prices since, Eon could perhaps have offered more, but not £8. One banker said: "Even with the generosity of the Spanish taxpayers, God bless them, it's difficult to see how this can make Iberdrola investors any money."

Iberdrola's investors agree. Its share price has fallen more than 10 percent since news of its interest emerged. But Iberdrola is not alone in paying above the odds.

"They [Spanish acquirers] are just mad generally," complains one banker. "They're willing to pay top, top dollar for assets." Terra Firma, for example, abruptly abandoned its strategy of building up a waste business when FCC offered it £1.4bn for Waste Recycling Group, earning £1bn profit in less than three years.

Business in Spain remains highly political, companies are shielded from ordinary shareholders by block stakes held by big financial institutions and domestic competition limited. The danger is that these weaknesses in Spain's business culture allow companies to act in ways that don't make sense for shareholders, meaning that the Spanish invasion will eventually backfire.

In the 1990s, the Americans piled in to buy British electricity grids. Those first in made money and even the second wave did reasonably. But the laggards, companies like TXU, lost out badly. It could be the same for the Spanish.

So far, however, Spain's pioneer investments in Britain appear to be doing well. In its recent results, O2 reported an impressive 14 percent increase in customer growth. Abbey announced an impressive performance in October. Ferrovial probably paid a fair price for BAA. The Iberdrola and FCC offers, however, are straying into dangerous territory.

Britain has seen only the first few ships of a continuing invasion. Water companies Pennon, Severn Trent and Kelda could all be targets. FCC was circling Pennon earlier this year. Amec, currently facing an offer from US private equity firms, would also make a good fit. The UK's smaller banks, such as Alliance and Leicester and even Lloyds TSB, could all be targeted by BBVA.

For Britain, welcoming the new Spanish Armada is win-win. British shareholders are cashing in and reinvesting their huge profits into other ventures. Foreign ownership will allow increased transfer of technology and know-how between both countries and prompt a much-needed culture shock in boardrooms. The subsidiaries of foreign companies invariably boast higher productivity than purely domestic firms; open markets and free trade are good for growth, jobs and prosperity.

If anyone is at risk, it is the Spanish firms with their defective, Japanese-style corporate governance. Unless they become much more careful stewards of their shareholders' money and more rigorous allocators of capital, many of the invaders are facing catastrophe when the boom and easy money ends at home.

In that event, there will be no need for a new Drake as the Spanish will have scuttled their own ships -- and, like the 16th century Armada before them, the survivors will eventually be forced to limp back, battered and in ruins, to face the music.



Source: http://www.thebusinessonline.com/Doc...0F9&doc_page=1

[Milesian]

I wonder just how "Spanish" and "British" these companies are.
I know Scottish Power and others own holdings in the US and elsewhere.
Most large companies these days are supra-national, so there are no real large corporations which belong to any one country anymore.
I'm sure these "Spanish" firms have multinational holdings and foreign shareholders too

[Gladstone]

Originally Posted by Milesian

I wonder just how "Spanish" and "British" these companies are.

Great point. They themselves could well be owned by some other foreign based corporation and perhaps is indicative of what the slogan for multi-culturalism ought to be...

"I sold you and you sold me"

[Ferran]

Well, they are indeed not exclusively Spain-based companies, in fact, some of them also control important parts of Latin America. But if they can't be called Spanish for that reason, then it should be also erroneous to talk about any of the old multi-continental Empires using just the national/ethnic adjective of their responsibles.

As a curiosity, Telefonica was founded by the father of José Antonio Primo de Rivera, named Miguel, during his mandate previous to the Spanish II Republic. So in that case we shouldn't just mention Spanish origins, but also Nationalist ones. I do agree though that modern day companies have no soul and represent a visible threat, but what's happening now is just a direct consequence of what Britain (among others) tried on the inmediate years to 1986.

[Milesian]

I wouldn't take any sort of pride in the matter. Corporations such as these are beyond any national allegiances or identities anyway.
British Telecom isn't British, nor is British Gas, nor is Scottish Power, or much else for that matter. These orgs think in terms of global identitiies, global ownership, global profit margins, etc.

They might have started their lives in one country, but most have quickly outgrown any sense of that now. Any nationality claim is purely nominal.

[Ferran]

Originally Posted by Milesian

I wouldn't take any sort of pride in the matter.

I wasn't either, I was just telling a curiosity about the origins of one of these companies, which at that time, was undoubtely Nationalist and with no other interest than beneficiating the Spanish people. But as I said, they are mostly soulless entities nowadays, Telefonica included, since it takes advantage of its monopoly in Spain to provide ADSL at very high quotas, while it gives little parcels to other companies with a previously accorded user connection price to make people think that there's a real competence.

Corporations such as these are beyond any national allegiances or identities anyway.

I'm well aware of that.

British Telecom isn't British, nor is British Gas, nor is Scottish Power, or much else for that matter. These orgs think in terms of global identitiies, global ownership, global profit margins, etc.

You are saying "British" as if it had an ethnic meaning. Well, taking into account what has been spoken here, "British" should work quite fine to define these companies, since the very origin of the word is not one-nation restricted and multicultural as well. But still, it's way more economic to say that X company is "Scottish" than to say "Scotland-based enterprise founded by a Scottishman and lately extended to the USA, etc". Everyone knows how modern companies work. Furthermore, sometimes emphasizing the procedence of a corporation is essential to understand some things. I mean, doesn't matter if McDonald's or Burger King have sucursals all around the world, they're just American and should be regarded as such.

[Menydh]

11:52 11/02/2005
Iberdrola ha desarrollado una política de incorporar a su accionariado a entidades de las Comunidades Autónomas en las que lleva a cabo sus negocios. En los últimos meses, se han incoporado a nuestro accionariado entidades como Bancaja, Unicaja, las Cajas de Castilla y León, Caja Murcia, Caja Extremadura, Caja Castilla-La Mancha... además de la BBK y el BBVA, que son accionistas tradicionales de la compañía. Por supuesto, además de ellos tenemos una amplia base de accionistas institucionales españoles y extranjeros. El accionariado de Iberdrola se caracteriza por su estabilidad.

which translates to:

Iberdrola has developed a policy of incorporating to its shareholder base companies of the Autonomous Communities where it does its work. In the last months we have incorporated to our shareholder base saving banks like Bancaja, Unicaja, [...] as well as BBK and BBVA [Basque saving bank and commercial bank respectively] which are the traditional shareholders of the company. We also have a wide base of shareholders from the Spanish and foreign [government] institutions. The characteristic shareholder group of Iberdrola is its stability.

The one shareholder here suspect of having foreign shareholders for being a big banking group, BBVA, belongs to the Basque family Ybarra and is largely owned by Spanish shareholders.

[Menydh]

An article somehow related to the comments by Milesian and Gladstone:

This Spanish invasion is good for me

[Milesian]

Well, I do agree with the first line of that article.
I am (somewhat) awash with cash. I get a nice dividend of a couple of pounds every couple of months, courtesy of the Bank of Santander....so you can add me to the list of foreign shareholders in a "Spanish" company

[Franze]

It´s good seeing these news, butg these companies aren´t spanish totally, it´s clear.