Greek business deal fever not seen to subside any time soon

Foreign funds have another good reason to be flocking to the Athens bourse again this year. In addition to the rosy forecasts for corporate earnings provided by analysts working for well-respected international investment houses, they can count on a pick up in corporate mergers and acquisitions (M&A). Interestingly enough, corporate activity has found an unlikely ally. The big increase in the world price of oil. So, although some large-caps command rich valuations, the Athens Stock Exchange appears to be heading toward its fourth straight good year. The expected rise in M&A activity is materializing, engulfing more and more sectors and paving the way for another good performance by the Athens bourse in 2006. Government officials are doing their best to feed corporate activity expectations. The flotation of a 25 percent of Postal Savings Bank (TT) on the Athens bourse is planned by the end of this month and preparations for the sale of a stake up to 10 percent of state-controlled ATEbank via an accelerated book building at any moment have also been made. Moreover, in an interview with Reuters this week, Finance Minister Giorgos Alogoskoufis fanned market hopes for the sale of a significant stake of OTE Telecom held by the state to a foreign telecoms operator next year. The foreign operator which may also assume its management will be OTE’s strategic partner. Moreover, OTE has not hidden its intentions to buy the minorities at its 67 percent mobile subsidiary Cosmote. Private and mixed-sector companies did not disappoint investors either. A few deals were made public last week with Cosmote, the mobile arm of OTE, announcing officially on Friday it is in exclusive talks with leading mobile telephony retailer Germanos’s major shareholder to buy his 34.5 percent stake. The details of this mega deal for Greek standards, are expected today. In addition, Germanos has sold its 25 percent stake in Hellenic Duty Free Shops to listed Folli-Follie for more than 200 million euros and Mytilineos Group offered to buy a majority stake in the subsidiary of listed Spider, holding licenses for electricity generation from wind farms. Expectations for more M&A activity are boosted by such deals as the friendly takeover of Egnatia Bank by the Marfin Financial Group and the acquisition of a 35 percent stake in the later by an Arab investment company based in Dubai. With the valuations of many high-profile large and medium-sized listed companies considered stretched and local investors still abstaining from the market, the outperfomance of the MSCI-Greece Stock Index vis-a-vis most of its European and world peers has been interpreted in the light of coming corporate deals. As of the close Friday, the MSCI-Greece Index, used as a proxy for returns by the majority of institutional portfolios worldwide, gained 15.43 percent in the local currency year-to-date, beating the MSCI-Europe Index which returned 9.57 percent over the same period. Athens is the third best performing stock market in the club of developed markets worldwide so far this year, trailing just Norway and Finland. Speculation confirmed In similar cases in the past, the outperformance of the Greek stock market, prompted mostly by buying from foreign funds and other entities, had invited speculation that corporate deals were in the offing. It was no different this time, with a small exception. The fact that money from abroad fed the rally was not accompanied by the assumption that foreigners had better access to information than local players. There was speculation in the local market, sometimes making the newspapers and business sites, days before it was officially confirmed. Forecasts for further strengthening of corporate activity in Europe abound since the beginning of the year. In addition to local or international companies from the same or bordering sectors, European buyout funds continue to make their presence felt, emboldened by a war chest, estimated at some 184 billion euros by Citigroup. Last year, Apax Partners and Texas Pacific Group teamed up to buy mobile operators TIM Hellas and Q-Telecom while BC Partners acquired a majority stake in Athens bourse listed Hyatt Regency Hotel and Casino earlier this year. BC Partners has been reported as eying listed Athens Medical Center. Interestingly enough, M&A activity has had an unexpected ally this year according to people who are involved in corporate deals. The major shareholders of listed companies are showing greater willingness to sell their stakes because they are afraid the high oil prices may hurt markets later on, depriving them of the opportunity to extract the same amount of money they can get now. «Believe it or not, this has played a major role in convincing them to make a deal,» says a high-level official from a brokerage actively involved in the negotiations. Moreover, some Greek businessmen realize it will be much tougher to compete in a more competitive environment where size matters and the forces of globalization are at play. All of the above have resulted in family feuding, a main reason for not getting deals done in the past in a country where family-run corporations are still the norm. Disagreements between brothers, sisters, sons and daughters have unraveled many corporate deals in the past. History teaches that corporate activity is not a panacea. After all, one plus one does not often add up to more than two. But now, deal fever appears to have caught the Greek corporate community, boosting expectations for another good year on the Athens bourse. Whether this will produce larger and more efficient companies has yet to be seen but it looks to have the support of foreign funds which have found in Greece the kind of fat returns on their investments they were looking for in the last three years.