Grupo Dragados SA

Avenida Tenerife 4-6
28700 Madrid
Spain
Telephone: (+34) 91-583-30-00
Fax: (+34) 91-583-21-22
Web site: http://www.dragados.com

Public Company
Incorporated: 1941 as Dragados y Construcciones
Employees: 51,536
Sales: EUR 5.89 billion ($5.8 billion)(2002)
Stock Exchanges: Madrid
Ticker Symbol: DRC
NAIC: 551112 Offices of Other Holding Companies; 237990 Other Heavy and Civil Engineering Construction; 562111 Solid Waste Collection; 221310 Water Supply and Irrigation Systems; 221320 Sewage Treatment Facilities; 541330 Engineering Services

Grupo Dragados SA is Spain’s second-largest construction and engineering company; pending a merger with rival ACS (Actividades de Construcción y Servicios S.A.), the company stood to become one of the largest in all of Europe. Dragados operates under four primary divisions: Construction, the largest division, representing more than 53 percent of sales in 2002; Services, ranging from street cleaning to waste treatment to port services, which provides about 25 percent of the group’s sales; Industrial, generating 17 percent of sales and grouping the company’s industrial construction and engineering projects, as well as its telecommunications infrastructure operations and new technology businesses, including its Internet component; and Concessions, which includes an international array of toll road, airport, and railroad concessions. In addition, the company holds a 20 percent stake in real estate group Immobiliaria Urbis. Since the 1990s, Dragados has been making an effort to increase its international scope; foreign operations now account for some 20 percent of the group’s sales. In 2002, Dragados posted revenues of more than EUR 5.5 billion. In that year, ACS made a surprise move to acquire a 23.5 percent stake in Dragados, just under the level at which Spanish law requires it launch a full takeover attempt. Nonetheless, the smaller ACS was able to gain a majority on Dragados’s board of directors, giving it effective control of the company. In 2003, ACS purchased an additional 10 percent and indicated its interest in completing a full merger with Dragados. Until that event, Dragados remains quoted on the Madrid Stock Exchange.

From Dredging Group to Major Construction Firm: 1940s–1970s

Dragados y Construcciones (“Dredging and Construction”) was formed in 1941 as part of the effort to build the Port of Tarifa, in Cadiz, Spain. Dragados’s work in that port consisted of constructing and placing reinforced concrete caissons. The company continued to build expertise in port and harbor dredging, construction, and services, becoming the leading Spanish group in that sector. Port services was also to provide the company with entry into international markets.

Dragados soon turned its dredging experience toward the construction of hydroelectric dams, working with various Spanish utilities, as well as the Spanish government, starting in 1945. The following year, Dragados went public, listing on the Madrid Stock Exchange.

By the 1950s, Dragados had become a diversified construction group, entering the railroad infrastructure market in 1951. The 1950s also marked the start of the group’s industrial plant construction operations and its entry into water supply and wastewater systems. After joining in the construction of the Spanish-American army bases, in which the company became involved in paving operations, Dragados began competing for airport construction contracts, winning its first, for Hondarribia Airport in Guipúzcoa, in 1953. In 1960, the company added to its airport portfolio with the construction of the first runway capable of handling jet airplane traffic at Madrid’s Barajas Airport. That same year, Dragados started its first subway construction job, building reinforced concrete tunnels for Madrid’s new subway system.

The company’s first move internationally came in 1965, when it won the contract to participate in the construction of Turkey’s Kadinicik Dam. Over the following decades, Dragados’s dam-building expertise helped it build a strong international component, with a portfolio of over 120 dam projects worldwide. Meanwhile, Dragados’s diversification continued through the 1960s. In 1967, the group received its first concession to build a toll road, between Seville and Cadiz. Infrastructure projects later became a significant part of the group’s growth. By the turn of the next century, the company had completed more than 2,500 kilometers of highways (including toll roads), another 4,000 kilometers of other roadways, and more than 1,500 bridges, a portfolio that established the group as one of the world’s leading infrastructure companies.

Other highlights for the group in the 1960s included the construction of the Guadarrama Tunnel in 1962, the Belesar dam in 1968, and the La Almendra dam, the Huelva wharf, and the Cadiz Bay bridge, all completed in 1969. By the end of the 1960s, Dragados had become one of the top construction groups in Spain. It had also gained a major shareholder, the Banco Central, which helped finance the group’s growth in the 1970s.

The new decade saw Dragados move beyond its infrastructure projects to add a new, industrial construction component, beginning with the building of the Amposta Field offshore oil platform in the Mediterranean in 1970. The company created a dedicated Industrial Plants division in 1975; the following year, that division received a major contract to build a 300-kilometer section of the Bilbao-Barcelona-Valencia gas pipeline.

With Spain’s economy foundering on the economic slump of the mid-1970s, Dragados turned toward international operations, entering the Latin American, North African, and Middle Eastern markets for the first time. The company also expanded into other European markets, notably through Dragados Industrial and construction activities in the United Kingdom’s North Sea offshore market. By the end of the decade, Dragados had also entered the Asian market, with the construction of a fertilizer plant in the Philippines.

Adding Services in the 1980s

Spain remained the company’s main focus, however, as Dragados completed a number of major projects in the 1980s. These included a Navarro toll road suspension bridge over the Ebro River; the Ramon y Cajal Hospital, completed in 1981 ; the Telecommunications Tower in Madrid in 1984, and the Aldeadavila power station in 1985. In that year, the company’s industrial component began construction on a turnkey fertilizer plant for the Philippines’ Philphos.

The opening of the company-managed solid urban waste recycling plant in the Canary Islands in 1986 marked Dragados’ entry into the services market. In 1988, the company formalized its interest in the area by creating a new Services division. Dragados then began competing not only for water treatment and sewage construction contracts but for the management contracts as well. With the influx of infrastructure subsidies from Spain’s 1986 entry into the European Union, Dragados quickly became a leader in the Spanish services market. One of the Services division’s first major contracts was that for the provision of street-cleaning services for the city of Madrid. The following year, the company signed a contract to provide complete waste-management services for another Spanish city, Elche.

The year 1990 marked the company’s first entry into the international concessions market when the company won concessions to provide maintenance services for nearly 1,000 kilometers of roadway around Buenos Aires, as well as a second contract to widen and manage a 360-kilometer stretch of Argentina’s Route 2. In 1992, Dragados Concessions won a bid to construct and operate the new Teodoro Moscoso Bridge in Puerto Rico. Two years later, that division was awarded the contract to build a northern access road into Buenos Aires.

Construction nonetheless remained Dragados’s primary business component. In 1992, that division completed the new Port of Alamillo, in time for Spain’s hosting of the 1992 World Fair. The company also completed a new metal roof for Barcelona’s St. Jordi Stadium that year. Meanwhile, the company’s industrial construction component had also been expanding, acquiring a new subsidiary, Control y Aplicaciones, in 1991, and winning a number of new domestic and international contracts, including the 1992 turnkey contract for a new cement factory for Venezuela’s Vencemos. In 1995, Dragados created a separate subsidiary for its industrial construction operations, Dragados Industrial SA.

Maneuvering for New Markets in the New Century

European Community infrastructure subsidies in Spain were slated to end in the early years of the 21st century. In response, Dragados, as well as the other major players in Spain’s construction sector, began maneuvering to increase both their share of the domestic market, as well as to position themselves on the international front. As part of that effort, Dragados, which by then had taken the number two spot in the country, joined with number one FCC (Fomento y Construcciones y Contratas) to compete for international contracts in a number of joint ventures. The move was meant to evolve into an eventual merger; however, talks broke down, and by 1998 Dragados had pulled out of its joint ventures with FCC.

Company Perspectives:

Our corporate identity, culture, and values are expressed in the following points that reflect 60 years of history and summarize our business objectives: To function as an international Group dedicated to Services and Construction with 1.) criteria to increase profitability and create value for the shareholder and a strategy promoting growth and diversification of activities and markets; 2.) the vocation of a leader capable of responding to society ‘s needs and in permanent technological innovation and development; 3.) a reputation for quality, competitiveness, transparency, business ethics, risk prevention, and respect for the environment; 4.) client satisfaction as a continuous goal; 5.) an attitude of collaboration and confidence towards its suppliers; 6.) employees with initiative, who are motivated, identified with the company’s project, and in constant professional development.

By then, Dragados had drafted a new strategy, Dragados Plan XXI, which called for the group to reduce its reliance on construction by diversifying its activities and boosting its international operations to as much as one-fourth of its total revenues. The company also reorganized its operations, and, in 1999, changed its name to Grupo Dragados. As part of its new strategy, the company adopted a five-point divisional structure, which included the Construction, Services, Concessions, Industrial, and Real Estate divisions.

In the meantime, Dragados continued to build up its impressive portfolio of worldwide contracts. In 1995, the company was awarded its first airport concession at Columbia’s El Dorado Airport, followed by a contract to resurface and manage a 280-kilometer roadway along the coast of Ecuador in 1996. The company returned to Columbia the following year with a contract to improve and operate the 100-kilometer highway. In 1998, Dragados turned northward, with a concession to build and operate a the 195-kilometer toll road between Moncton and Fredericton in New Brunswick, Canada.

The company’s industrial division was also scoring increasing success overseas. In 1995, the company began building a gas line across Morocco as part of the Metragaz pipeline linking North Africa and Europe. The company built the Automatic Hydrological Data System in the Tajo Basin in 1996, then won a turnkey contract for an oil refinery in Costa Rica. Dragados also took part in the Petronas Twin Towers project in Malaysia. In 1997, the company participated in the construction of the Oresund Bridge between Denmark and Sweden; the following year, Dragados Industrial began construction of sections of Chile’s Pacific Gas Pipeline and parts of the Bolivia-Brazil gas pipeline.

Dragados also began expanding externally. In 1999, the company acquired a 45 percent stake in Sopol, based in Portugal, which gave it the leading position in the Spain’s port and transport services sector. In 2000, the company moved to take a piece of the e-commerce market, forming a partnership with Virtual Net to provide Internet and related services, then launching the B2B web portal E-difica. In that year, also, the company spun off part of its concessions operations, which were merged with Aumar to create Aurea Concesiones de Infrastructures. Dragados retained a 34 percent stake in the new, publicly listed company. Dragados then entered the Brazilian market with the acquisition of Via Engheneria, which was subsequently renamed as Via Dragados.

Dragados continued its reorganization in 2001, spinning off its real estate holdings into a merger with Immobiliaria Urbis. Dragados then took a 20 percent share of the enlarged Urbis. This move was in keeping with Dragados’ newly defined strategic plan (Plan 2001-2004), which called for the company to maintain its construction operations at over 50 percent of its total revenues, while stepping up its international growth. As part of that plan, the company proposed to spend more than EUR 1 billion by 2002 to continue the diversification of its operations. Among the company’s plans was the construction of its own broadband telecommunications network capable of reaching more than 19 million people.

Meanwhile, Spain’s construction sector continued jockeying for position. In 2001, Dragados joined in the drive to consolidate the sector, launching merger talks with a smaller, private rival, Sacyr. When those talks fell through, Dragados headed north, launching a friendly takeover of the Netherlands’ Hollandsche Beton Groep (HBG) for a cost of $655 million. The takeover doubled Dragados size, placing it as number three in Europe—behind France’s Bouygues and Vinci. It also gave it an entry point into the Eastern European market, which was poised to receive the bulk of EC infrastructure spending in the new century. Nonetheless, the move was criticized for exposing Dragados to the mature Dutch and German markets.

While it was expanding internationally, Dragados was caught off-guard domestically. In April 2002, the company’s major shareholder, Santander Central Hispano (SCH), which had inherited Banco Central’s original stake in Dragados and built it up to 23.5 percent, agreed to sell its entire holding to smaller rival ACS. This move was heavily criticized—performed just a day before a Dragados annual meeting that might have prevented such an action, the deal limited ACS stake to just below the 24 percent level, which would have triggered an automatic takeover offer under Spanish law. Instead, ACS effectively gained control of Dragados, nominating seven of the company’s 15-member board of directors. Meanwhile, minority shareholders were deprived of the opportunity to sell off their shares at the same premium price paid by ACS to SCH.

Key Dates:

1941:

Dragados y Construcciones forms to dredge the Port of Tarifa.

1945:

Dragados begins construction on its first hydroelectric dam projects.

1953:

Dragados begins its first airport construction project at Hondarribia Airport in Guipúzcoa.

1965:

The company begins its first international project with a contract to participate in the construction of Turkey’s Kadinicik Dam.

1967:

Dragados takes on its first toll road construction and management concession between Seville and Cadiz.

1970:

The company begins industrial construction activities with Amposta Field offshore oil platform.

1975:

A dedicated Industrial Plants division is created.

1988:

A Services division is created as the company expands into waste and water treatment and other infrastructure services.

1995:

A new subsidiary, Dragados Industrial, is formed.

1999:

The company changes its name to Grupo Dragados.

2002:

ACS makes surprise purchase of 23.5 percent of Dragados, effectively gaining control of the company.

In June 2002, Dragados sold off HBG to Royal BAM NM for a little more than it had paid in a move designed to pave the way to a future merger between Dragados and ACS. By January 2003, the two sides appeared to move closer to a full-scale merger when ACS agreed to acquire another 10 percent of Dragados, appeasing minority shareholders. The merger of the two companies was expected to be completed by the end of that year, making the combined group one of the largest construction and engineering companies in Europe. Backed by Dragados’s more than 60 years of experience, and its extensive portfolio of international projects and concessions, the combined company was certain to remain a major force in the global construction market.

Principal Subsidiaries

Dragados Obras y Proyectos SA; Dragados Industrial SA; Urbaser SA; Aurea Concesiones de Infraestructuras SA; Construcciones Especiales y Dragados SA; Dragados Moroc, S.A. (Morocco); Dragados Road (United Kingdom); Dragados y Construcciones Argentina SA (63%, Argentina); Dragados y Construcciones Venezuela SA (99.43%, Venezuela); Dravo SA (50%); Geotecnia y Cimientos SA; Integra MGSI, S.A. (46%); Sociedad General de Construções e Obras Públicas SA (50%); Tecsa; Empresa Constructora SA; VIA DRAGADOS SA (50%, Brazil).

Principal Competitors

Bouygues S.A.; Acciona S.A.; Balfour Beatty plc; Hochtief AG; ACS Actividades de Constructión y Servicios S.A.; Kvaerner plc.

Further Reading

Elkin, Mike, “Spain’s Construction Firms Poised for Deals,” Daily Deal, October 10, 2001.

Hoare, Michael, “Power Struggle for Dragados Draws Fire from Bankers,” Financial News, April 22, 2002.

——, “Spanish Takeover Rules in the Spotlight,” Financial News, April 29, 2002.

Levitt, Joshua, “ACS Seeks to Lift Dragados Stake,” Financial Times, January 16, 2003, p. 28.

White, David, “Dragados Seeks Foreign Link After Merger Collapse,” Financial Times, August 14, 1998, p. 16.

—M. L. Cohen