The giant international construction, water and environmental services group Fomento de Construcciones y Contratas (FCC), based in Spain where it is publicly listed on Spain’s stock exchanges, and controlled by Spanish billionaire Esther Koplowitz, disclosed yesterday the sale of 51% of its energy business to Spanish private equity firm Plenium Partners, based in Madrid.
Last March FCC, which had over US$16 billion (Euros 12 billion) of total consolidated annual revenues in calendar and fiscal year 2012, and had been incurring heavy losses in many of its businesses, formulated a new strategic plan for the company which was approved by its Board of Directors and disclosed to the investment community.
The goal of the new strategic plan is to realign the company’s business with the realities that several years of deep recession in Europe, and particularly in Spain itself which remains its principal market, have inflicted upon it and indeed on many other Spanish companies as well.
With an eye to the future, Esther Koplowitz’s eldest daughter Esther Alcocer Koplowitz was appointed then as the new Chairman of the company, and Juan Béjar Ochoa was appointed both as Executive Vice-Chairman and as Chief Executive Officer. It is essentially their job now to execute the plan together and to deliver results.
Key elements of the new strategic plan are: to cut back expenses where possible in all areas; to focus the company’s resources where they can best be deployed; to de-emphasis the massive construction division relative to the more profitable water and environmental services groups; to divest significant assets to help reduce the company’s heavy debt load; to raise some new equity without impacting on the control position and, finally, to restructure and extend term of their overall remaining corporate debt positions as well.
The intended result will be to end up with a somewhat smaller yet much more profitable company, and one that enabled to routinely meet its financial obligations and the needs of its shareholders, for both cash flow in the form of dividends and future capital gains in the form of increased shareholder value.
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Since adopting the plan, FCC have completely shut down Alpine, their heavily money-losing construction subsidiary in Austria. This shed over US$1billion (Euros 741 million) of debt from the consolidated balance sheet at a stroke. In addition the debt was also non-recourse to the parent so has no further impact on the company, as already reported in its nine months financial results to September 30th. In the same financial report FCC also noted it had succeeded in selling a number of other non-core assets as well, raising some US523 million (Euros 382 million).
FCC also announced just a few days ago the complete refinancing of its major UK environmental services group. The refinancing extends the term of its loans in the UK out another four years almost to 2018, which covers US$625 million of its corporate debt (Euros 456 million).
With yesterday’s announcement FCC has now made some more progress in what, of course, remains a challenging and continuing exercise, by selling 51% of its energy business to Plenium Partners. Plenium Partners is a boutique private equity firm, based in Madrid, which specializes in bespoke transactions, particularly in the energy field.
While it has been reported the company will initially receive just US$11 million (Euros 8 million) for its shares, it will get upsides in the future based on performance, and of course it gets to keep a substantial minority stake of 49% in the company as well. More importantly for FCC, perhaps, when the transaction closes the company will immediately be able to deconsolidate interest bearing debt associated with the business of just over another US$1 billion (Euros 763 million). With more than US$9 billion (Euros 6.6 billion) of total long term and short term consolidated net debt recently, the deconsolidation arising out of this transaction remains a very significant number in accounting terms, and will be especially so if it should also turn out to be completely non-recourse to the parent as well.
FCC’s CEO and Vice Chairman Juan Bejar – with FCC’s Chairwoman Esther Alcocer Koplowitz
FCC’s Energy business today is significant in size, comprised of fourteen 100% held wind farms with 420 mega watts of total installed capacity, majority interests in two solar thermal plants with 100 megawatts, and two small photovoltaic plants providing 20 megawatts.
The company’s bankers Banco Bilbao and Bankia, as well as investment banking firm Goldman Sachs, acted as advisors to the deal.
With this new announcement therefore another step has been taken towards one of the company’s strategic goals which is to reduce the company’s total corporate consolidated debt to a much more manageable US6.8 billion, (Euros 5 billion), and of course to restore healthy levels of profitability as well, along the way which is a sine qua none.
The markets have responded positively to the company’s progress to date, though still remain in something of a wait and see mode consistent with the size of the task. However recent investments by Bill Gates who acquired a 6% position for US$155 million (Euros 113 million) just two months ago, with the money usefully going into the company itself, and by George Soros just a few days ago, who bought a 3% position for about US$100 million (Euros 72 million) in the market, are a huge vote of confidence in the new management of the company and, as well, in its controlling shareholder Esther Koplowitz.
Divestitures and financial restructurings are of course extremely important to the business, as will be finding ways to collect the hundreds of millions of Euros that Spanish local authorities still owe the company for current services. However the real key for restoring the financial health of the company lies in the ability to write new business at a profit in their construction division, even when it becomes responsible for a smaller share of their total output. With long lead times and a highly competitive international bidding environment for obtaining business, this will be both critical and complex.