CPPIB/OTPP reach end of road with Transurban
In what looks like the end of the road for the takeover bid by Canada Pension Plan Investment Board (CPPIB) and the Ontario Teachers’ Pension Plan (OTPP) for Australian toll road operator Transurban Group, the Transurban board rejected a higher offer of A$7.2 billion ($6.4 billion), launched together with local fund manager CP2 Ltd., and pressed ahead with a rights issue to fund the acquisition of Sydney’s Lane Cove Tunnel, which would dilute the bidders’ joint 42% stake.
The CP2/CPPIB/OTPP grouping made its offer contingent on Transurban’s board scrapping the share sale. When Transurban went ahead with the sale anyway, they readjusted their offer. Transurban then secured some A$410 million from institutions towards its A$542 million ($490.5 million) target, but markets punished Transurban’s shares as expectations of a successful bid receded.
CP2 complained that there was “no logic” in the Transurban board’s decision, while CPPIB and OTPP both described themselves as disappointed. The CP2/CPPIB/OTPP bid was around one Australian dollar higher than the A$4.68 ($4.20) closing price of Transurban’s shares post the board’s rejection. It was equally above the value on the stock in the share sale to fund the Lane Cove Tunnel acquisition. Transurban was trading at almost twice this low in 2007, and analysts put the fair value of the Transurban stock at about 10% higher than the CP2/CPPIB/OTPP bid price.
Hopes of further attempts to take the offer to Transurban’s shareholders, typified by market rumors of interventions by the Abu Dhabi Investment Authority – which just picked up 9% of Macquarie-originated toll road operator Intoll – and Australian SWF the Future Fund – which withdrew from earlier participation in the bid in March – were disappointed. OTPP sold out its 12% stake in the target for around A$710 million ($619 million), defying predictions that neither of the Canadian funds would exit at current valuations.
Prospects for a successful approach to shareholders over the heads of Transurban’s board were slight in any case. This would require 90%+ approval under Australian regulations, an unlikely outcome, and one vulnerable to the kind of brinkmanship by hedge funds that derailed TPG Capital’s earlier attempt to privatize Qantas.
Transurban has said it is open to exploring other ways of working with its remaining major stakeholders, but now OTPP has turned off the road, CPPIB will also presumably be looking for the exit ramp.
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