Transurban is like Oliver Twist in one respect.
It likes what it sees in a bowl thrust its way yesterday by two big Canadian pension funds, but it would like them to sweeten the dish with a few million dollars more, preferably more than a few more.
So the toll road operator rejected the takeover approach from the two Canadian funds, left the door open to a better offer, and sat back and watched its shares race up by almost 20%.
They closed up 19.3% at $5.24, a gain of 85c on the day.
Last night there were suggestions from some big shareholders quoted in media reports that a $5.80 offer price (or another 10%) might be enough to win a yes.
That’s around $700 million, which would lift TCL’s value to $7.5 billion (less the 28% of the company the two funds already own).
That would be equal to the 52 week high a year ago, just before the big fall in markets from November onwards.
Transurban (TCL) rejected the (which is Australia’s biggest toll road operator), the unsolicited $6.8 billion takeover offer from Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan in this statement. That was revealed at 11.15 am.
The pension funds offered $5.25 a share, shares in the unlisted company once it is privatized (for capital gains tax rollover purposes for smaller shareholders), or a combination of both. The price offered was a 20% premium to TCL price on Wednesday.
At 4.27 pm the two funds issued a joint statement in which they confirmed the approach.
"Further to the announcement made by Transurban today, Canada Pension Plan Investment Board ("CPPIB") and Ontario Teachers’ Pension Plan ("OTPP") confirm that on 27 October 2009 they submitted an indicative proposal to acquire 100% of Transurban securities by way of a scheme of arrangement ("the Proposal").
"CPPIB and OTPP believe the Proposal provides Transurban security holders with compelling value for their investment.
"The Proposal would allow Transurban security holders to choose between a cash price of A$5.25 per security, an unlisted scrip rollover and top-up alternative or a combination of both.
"The cash price of A$5.25 represents a premium of 20% to the Transurban security price at the close of trade on 4 November 2009 and a 25% premium to Transurban’s Volume Weighted Average Price (VWAP) for the three months prior to that date.
"CPPIB and OTPP note Transurban’s willingness to enter into constructive discussions on bona fide proposals and look forward to the opportunity to discuss the details of the Proposal with Transurban."
TCL said the proposal was “incomplete, highly conditional and non- binding.”
That’s normal for an opening round in a big bucks takeover.
With 28% the two Canadian funds have the whip hand, but must move carefully, otherwise they will alienate the board. The deal has to be an agreed, non-hostile offer.
It is complicated by the big vote last week (for a second year) against the remuneration report put to TCL’s AGM.
During that meeting there were plenty of comments made critical of the board.
Shareholder unhappiness was running at quite high levels, according to media reports, although with if a higher offer is made, it could convince smaller holders to accept.
Transurban owns toll roads in Australia and offshore.
They include the Pocahontas 895 road in Virginia in the USA and the Hills M2 in Sydney (which is being expanded at a cost of half a billion dollars over the next three years) and the Citylink in Melbourne.
It also has half of the big M7 in Sydney which has been one of the better performing tollroads in the past couple of years.
The Ontario Teachers’ Fund sold a stake in the Macquarie Infrastructure Group last week, a move which raised eyebrows and set off rumours that TCL could be a target.
The move marks the latest swoop on an Australian infrastructure group by Canada’s pension funds and big investors.
Brookfield Asset Management, a big private Canadian financial group, took over Multiplex at the start of 2008 and has been looking to grow by acquiring more assets.
It is trying to buy a 40% stake in the troubled Babcock and Brown Infrastructure.
The Canada Pension Plan Investment Board bought Macquarie Communications Infrastructure Fund in June for $1.4 billion.
Transurban is unlikely to be the last target for private funds looking for stable, long-term cash flows and investments.
For instance, the about to split Macquarie Infrastructure could see the so-called "good" bit of the fund a target, once the changes are completed. It will have low debt and high cash flows.
Infrastructure funds have abandoned the geared up, heavy borrowing approach pioneered by Macquarie (as have many real estate trusts) and gone to paying distributions out of operating earnings.
That makes them all targets for big investors looking for stable investments.
