Here’s a reason to think German stocks might still be cheap — German companies are shocked by the notion that someone else would get to own their businesses at current price levels.
Germans are concerned that the nation’s relatively open takeover laws will allow an upcoming surge of foreign companies taking over German stalwarts, for a steal:
Germany industry is now worried about the prospect of a mass sell-off at bargain basement prices. Hochtief is likely only the beginning. Many experts believe Germany companies are facing a wave of takeovers. There is certainly no lack of attractive targets — around a dozen of the country’s 100 largest corporations are considered at risk.
These companies have few debts, plenty of cash and are bringing in good profits, but their value on the stock market is relatively low. Potential targets, according to estimates by the German business daily Handelsblatt, include Infineon, Rheinmetall, MTU Aero Engines, semiconductor manufacturer Aixtron and biotechnology company Qiagen (see graphic). These companies don’t have major stockholders who could prevent a takeover and they have a low price-earnings ratio, meaning that a buyer could recoup the takeover costs within a few years from dividends.
France and Spain illustrate one extreme in terms of handling foreign takeover bids. Germany represents the other. Hardly any other country in Europe makes it so easy and so cheap for foreign corporations to acquire domestic businesses.
A would-be purchaser such as ACS can buy up Hochtief shares relatively cheaply. Any party that acquires more than 30 per cent of a German corporation must bid to buy the remaining stockholders’ shares at a minimum of their average value over the past three months.
Once it has passed the 30 per cent hurdle, ACS is no longer required to make Hochtief stockholders any further bids. Instead, the Spanish company can continue to acquire blocks of shares at its leisure, whenever market prices are particularly low, to eventually secure control over its German competitor.
Maybe they should buy themselves, or get the German public to buy if the deals are so good.