By Pamela Barbaglia, Francesca Landini and Matthias Inverardi
LONDON/MILAN/DUSSELDORF (Reuters) - Atlantia (MI:ATL) and Hochtief (DE:HOTG) are preparing to improve rival offers for Spain's toll-road operator Abertis in a nearly 20 billion euro takeover battle that is likely to be resolved by sealed bids early next year, sources close to the talks said.
The tussle that began in May pits Italy's largest motorway operator against the German arm of Spanish builder ACS (MC:ACS), drawing in an army of banks in Europe's biggest deal this year.
ACS, led by boss Florentino Perez, is currently in the lead having submitted a higher bid on Oct. 18 that values Abertis at 17.1 billion euros.
Atlantia, controlled by the Benetton family, is expected to make a counter-bid early next year once Spanish regulators complete a review of Hochtief's bid approach.
Atlantia's takeover plan has already been vetted by regulators in Spain and in the EU.
Several sources said Atlantia, advised by Credit Suisse (S:CSGN) and Mediobanca (MI:MDBI), is looking to make a modest increase to Hochtief's cash and share bid early next year, but it will not call it its "best and final" offer.
The Rome-based firm would then make a knock-out offer at the end of the investors' acceptance period as part of the so-called "blind bid" contest, they said.
"They will keep fighting till the end", said a source working with one of the parties. "For both companies winning this deal is an absolute priority."
Atlantia and Hochtief declined to comment, while ACS was not immediately available.
Sources familiar with the negotiations said the bid battle will not be resolved until March or April.
Under Spanish law, the bidders competing to buy a publicly-listed company are invited to make their "best and final bid" over the last five days of an investors' acceptance period, which starts immediately after the regulatory review and lasts 30 days.
The sources said both bidders were gearing up for this final arm-wrestling contest as they are both in a position to sweeten their bids a few more times.
Atlantia has so far kept its cards close to its chest and is waiting for the Spanish watchdog to give Hochtief the green light, which is expected between late January and early February.
The Rome-based company has had lengthy discussions with banks over its financial capacity and is confident it can significantly improve its 15.6 billion-euro offer, the sources said.
Any new Atlantia bid would force the Spanish watchdog to stop the clock and review the improved offer within three days. If the bid is approved, the watchdog can then restart the acceptance period or potentially extend it.
Atlantia is under no pressure to make a new bid immediately. It could wait until the last five days of the acceptance period in March.
This is when the Spanish regulator will ask Atlantia and Hochtief to submit their "best and final" offer in sealed bids. Their proposals will be presented to Abertis' board for a final decision.
Atlantia and Hochtief are both expected to avoid calling any improved bid "best and final" until they reach this final stage, the sources said.
There was a similar bidding war in Spain 10 years ago, when construction firm Sacyr and engineering firm Isolux made sealed bids for Spanish road operator Europistas. Sacyr emerged as the winner.
But the contest between Atlantia and Hochtief is the first example of a domestic company in Spain being fought over by international players.
GREAT EXPECTATIONS
Atlantia wants Abertis to create the world's biggest toll road operator with a combined market value of more than 36 billion euros.
The deal would help Atlantia to expand in international markets such as France and Latin America and cut its dependence on low-growth Italy.
Atlantia and Abertis have been working on a possible combination for many years and came close to a deal in 2006 when Abertis was about to buy Atlantia but negotiations fell through due to Italian government opposition.
Atlantia's boss Giovanni Castellucci said in May that its cash-and share offer was friendly, adding Atlantia had been in talks with Abertis' top shareholder Criteria Caixa for weeks.
But a bidding war with Hochtief erupted just days after the Atlantia deal was cleared by regulators.
Hochief's parent ACS initially approached infrastructure funds to finance its merger plan, but had no luck and ultimately turned to its publicly-traded German division Hochtief to finance its takeover proposal.
ACS, which has a market value of 10 billion euros, is keen to diversify away from its core construction business and build a strong presence in the less volatile infrastructure concessions market, which includes toll roads.
It is looking at France's Vinci (PA:SGEF) as a possible model, one of the sources said, as the French firm is active in both infrastructure concessions and construction with operations in more than 100 countries and has a market value of 52 billion euros (£45.87 billion).
ACS, advised by JPMorgan (N:JPM) and Lazard (N:LAZ), is hoping to add Abertis' more than 5,000 miles of highways to its construction businesses and extend its operations to Brazil among other countries.