The boards of Spanish toll road operator Cintra and majority owner Ferrovial have unanimously approved a merger proposal for the two companies, bringing the deal one step closer to completion despite vehement opposition by several minority shareholders.
The merger will proceed as a stock swap, with an exchange ratio of four shares of Cintra for each Ferrovial share, the companies said in a joint press release. The par value of the Cintra shares is €.20 and the par value of the Ferrovial shares is €1. Both companies said their respective advisors have agreed the exchange ratio is fair from a financial standpoint.
Ferrovial owns 67 percent of Cintra’s total share capital. By buying out the remaining 33 percent, the firm will gain access to about €400 million of cash reserves held by Cintra – money it could use toward a cash injection for its debt-ridden BAA airports business.
Analysts at Credit Suisse earlier this month estimated that BAA, which Ferrovial acquired in a highly leveraged transaction in 2006 for £10.2 billion (€12 billion; $17 billion), will need a £1.6 billion equity injection to buy out its subordinated debt. Ferrovial’s portion of that equity injection would be about £1 billion, Credit Suisse said.
Several minority Cintra shareholders oppose the deal on grounds that it was instigated to help Ferrovial repair its balance sheet at the cost of Cintra. These include UK’s Universities Superannuation Scheme along with CP2, Gartmore Investments, Magellan Asset Management, New Jersey Division of Investment and rpmi Railpen Investments – which together own 4 per cent of Cintra.
They have previously said they will vote against the merger unless it is based on an exchange ratio of one new share in Ferrovial for one and a half shares in Cintra. This exchange ratio, or better, they said, would provide “fair value” for Cintra’s assets and adequate compensation for the increased exposure in operational and financial risks related to Cintra.
Cintra and Ferrovial plan to put the proposal to shareholders at a meeting of both companies in October. Public notices of the merger will be published in September.
The merger approval coincides with half-year 2009 earnings results at both companies.
Cintra reported revenues of €301.6 million, a 1.9 percent decline over the same period last year, due mainly to falling traffic. Earnings before interest, tax, depreciation and amortisation amounted to €205.4 million for the period, a 7 percent decline over the same period last year.
Ferrovial reported revenues of €5.9 billion, a 5.6 percent decrease over the same period last year, and EBITDA of €1.2 billion, a 1.3 percent decrease. Both were affected by exchange rate movements of the Euro versus the British Pound, Canadian Dollar and the Polish zloty.
Ferrovial shares rose 3.56 percent after the merger announcement, closing on €25.9 yesterday.
Cintra shares edged up 2.62 percent, closing on €5.08.