Listed Spanish companies are being heavily punished. Their market value is well below that of book assets, so there is little doubt as why foreign investors eye them with growing appetite.
The latest attempt to gain control over Telefonica, led by US AT&T, wasn’t exactly a surprise for most analysts–in Madrid and in other European financial hubs–but proved nevertheless the current state of affairs. It sure has filled the Ibex 35 with excitement, where it is still talked about as the probable firing shot of a phase of economic reactivation and renewed interest over the fourth economy of the Eurozone and a 45 million-consumer market.
Spanish companies at this point bear an affordable price tag, after five years of market downturns. Indeed, observers and bargain hunters have begun to make their moves to take advantage of the situation. A comparison between their stock capitalisation figures in 2007 and 2013 is revealing: Inditex was €31 billion and is €61 billion today, but Santander (€94bn versus €57bn), Telefonica (€110bn versus €47bn), BBVA (€64bn versus €37bn), Iberdrola (€52bn versus €27bn) and Repsol (€31bn versus €22.5bn) tell the real story.
Foreign corporations and investment funds searching for high dividend scenarios and with enough leeway to access credit at low cost are approaching Spain. There is more than one reason, though: they have been watching the mergers and acquisitions activity from afar because the country’s levels of sovereign debt and scarce financing available were too discouraging. Yet, soon enough, many Spanish banks will need to press ahead and sell their stakes in Ibex 35 companies to deleverage. Telefonica, Iberdrola, Repsol, Abertis, BME, Mapfre or Indra will then find new partners and foreign capital seems the likely candidate.
Spanish companies would fancy eating a piece of the cake, too, but internal savings are all but absent. It will be up to others to profit from these opportunities. How would this be seen in Spain? Let me explain this The Corner’s readership: yes, some will demonise the process as an imposed sacrifice to overcome the crisis. The current government isn’t going to overact in any case, though, beyond the limitations of its already strong role in highly regulated sectors like telecommunications or energy, where any takeover bid from a non-resident investor will need the okay of a number of executive directors.
The days of over-protection and unflinching pride are a thing of the past–there is no possibility of a repeat of another expensive battle like the one fought by Endesa against bids from Gas Natural and E.On, for instance. At this stage, the curtains have been lifted for good in Spain. Corporations with a good level of international exposure, sound cash generation, proven growth and sustainable sales cannot escape the net of future investors from China, Russia or the Arab Emirates, and elsewhere.