The European economic recovery story has a new champion in Bill Gates. The man who tops Bloomberg's ranking of the world's billionaires has paid $155 million for a 6 percent stake in Fomento de Construcciones y Contratas, a major Spanish construction and environmental services group that barely survived the financial crisis.
Gates's stake in Microsoft, the company he co-founded in 1975, now counts for less than 18 percent of his total assets. The rest of his holdings consist increasingly of down-to-earth, solid companies providing relatively low-tech, unglamorous services. They include significant stakes in the Canadian National Railway, car dealer AutoNation, waste manager Republic Services, water and sanitary chemicals company Ecolab. The investments have done well, making money faster than Gates can give it away to charity.
The Spanish investment represents one of the few Gates has made outside the Americas. Apart from the Canadian railroad stake, he owns about 3 percent of Femsa, the Mexican Coke bottler, and 3 percent of media company Grupo Televisa, also in Mexico. His European exposure has been limited to tactical purchases of shares in oil company BP.
FCC, at first glance, is a strange choice. It lost more than $1.4 billion in 2012. True, most of that was a one-time writedown related to the failure of FCC's Austrian subsidiary, Alpine, after an unsuccessful Eastern European expansion. Yet 50 percent of the company's construction business was concentrated in Spain, a country that has not yet recovered from a burst real estate bubble. Nobody wants to build anything in Spain. The country's "bad bank," Sareb, has its hands full trying to sell billions of dollars' worth of land and buildings it has acquired in an effort to clean up bank balance sheets.
At the beginning of the year, FCC faced a mountain of debt -- almost $10 billion, 8 times its market value at the time. Esther Koplovitz, Spain's richest woman and the company's largest shareholder, took the reins as chairman of the board in a bid to turn things around. A newly appointed chief executive, Juan Bejar, outlined a plan to keep the company afloat, centered on the immediate sale of non-core assets to reduce debt.
The plan has worked remarkably well. FCC now expects to end the year with about $8 billion in debt, which it intends to completely refinance. In July, the company won the largest contract in the history of Spain's construction industry: a $6 billion deal to build three subway lines in Saudi Arabia's capital, Riyadh. It is becoming the kind of business Gates appears to like -- it even includes a highly profitable waste management operation.
It is still an optimistic bet. Economic growth in Southern Europe is now largely a promise. Spain is expected to post a 0.1 percent increase in its gross domestic product in the third quarter of this year, after seven quarters of continuous decline. Many investors believe it is time to buy the growth story as it begins to unfold. FCC's share price has doubled in the past six months. For anyone hesitating to jump on the bandwagon, Gates's deal is a clear sign that the European story is sound enough even for a conservative value investor.
From Gates's perspective, however, it's only a small bet. The entire investment, at $155 million, is no more than his portfolio fluctuates on an uneventful trading day.
(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. Follow him on Twitter.)