By Pamela Barbaglia and Ben Martin
LONDON(Reuters) - Italy's largest motorway operator Atlantia <ATL.MI> is examining legal action to stay in the $20 billion (£15 billion) bidding war for Spanish rival Abertis <ABE.MC> amid concerns it will be frozen out of the contest, a source familiar with the matter told Reuters.
The move comes after two Spanish ministers asked the CNMV, the country's stock markets and merger deals regulator, to revoke the approval it granted in October for Atlantia's bid, which has also been cleared by the EU's competition regulators.
If successful, a merger of Atlantia and Abertis would create the world's biggest toll road operator with a combined market value of more than 40 billion euros (£35.3 billion).
However, due to the political hostility in Madrid the odds are lengthening that the Rome-based company will prevail over German bidder Hochtief <HOTG.DE>, which is controlled by Spanish construction group ACS <ACS.MC>.
Atlantia is now preparing for legal action should its bid be blocked, the source said.
The Rome-based firm, controlled by the Benetton family, is fully focussed on winning control of Abertis, regardless of the opposition from Spanish public works minister Inigo de la Serna and energy minister Alvaro Nadal, he added.
"Those ministers have previously voiced discontent but the rest of the government is neutral," he said. "This is a financial transaction and only the market will decide."
A spokesman for Atlantia declined to comment.
Spain's infrastructure and energy ministries told the CNMV on Dec. 7 it should not have authorised the bid as Atlantia had not sought permission from the government to take control of Abertis's communication satellites business.
The government considers Hispasat, majority-owned by Abertis, as a strategic asset since it controls Spain's national satellite communications system.
The uncertainty surrounding the CNMV's decision, which is due by Jan. 7, is keeping Atlantia's management on tenterhooks as it wants to submit a higher bid in January.
Atlantia needs to trump a 17.1 billion euro counter-bid from Hochtief, which was submitted on Oct. 18.
Should CNMV apply different rules to the Hochtief bid and only require Atlantia to get government permission to bid for Abertis, then the Italian firm would seek the intervention of the European Commission on the grounds of alleged discrimination.
Atlantia has already negotiated a financing package with a pool of banks which include Credit Suisse <CSGN.S>, Mediobanca <MDBI.MI>, Santander <SAN.MC>, UniCredit <CRDI.MI> and Intesa <ISP.MI>, the source said, adding that the terms of the package are guaranteed until a deal has been agreed.
The Italian firm, led by boss Giovanni Castellucci, is now considering making an all-cash bid, the source and another person close to the negotiations said, adding this is the easiest option as banks are willing to lend more cash.
Reuters reported on Dec. 6 that Atlantia was likely to wait to call any new bid its "best and final" offer until the last five days of an investors' acceptance period, which will start immediately after the regulatory review and will last 30 days.
This is when the Spanish regulator will ask Atlantia and Hochtief to submit their final offers in sealed bids. Their proposals will be presented to Abertis's board for a final decision.
Yet both parties now face a delay due to the impending CNMV ruling on Atlantia.
Under Spanish law the two ministers who raised concerns over Atlantia's takeover plan may still appeal against any decision which clears the way for the Italian bid to go ahead, the source said.
But the acceptance period for both Hochtief and Atlantia can only open when both bids have been cleared by the regulators.
And any appeal by either side would cause further delay to a process which has been running since May and has mobilised an army of bankers and lawyers.
DLA Piper and Italy's Gianni, Origoni, Grippo, Cappelli & Partners are among Atlantia's legal advisers while Credit Suisse, Mediobanca and Santander are its main banks.
Freshfields and Linklaters are advising ACS and Hochtief on legal matters alongside a pool of investment banks led by JPMorgan and Lazard.
Abertis has retained Citi and boutique bank AZ Capital while Spanish law firm Uría Menéndez Abogados is its legal adviser.
(Additional reporting by Paola Arosio and Andres Gonzalez; Editing by Greg Mahlich)