Intoll directors say yes to $3bn CPPIB bid

The directors of Intoll have recommended to their shareholders an all-cash takeover offer of just over $3bn from Canadian pension CPPIB. The bid represents an enterprise value to full-year 2010 EBITDA multiple of 26.6 times - but one Intoll shareholder called it ‘disappointing on a few fronts’.

Pending final shareholder approval, Australian-listed roads operator Intoll has accepted a A$3.4 billion (€2.4 billion; $3.1 billion) takeover offer from Canada Pension Plan Investment Board (CPPIB), a Canadian pension fund, Intoll announced last Friday during a results presentation.

The improved cash offer from CPPIB values Intoll at A$1.52 per security – a 2.5 cent premium to its previous offer, announced on July 15 – or A$3.4 billion in equity. Intoll’s enterprise value stands at just over A$5 billion. CPPIB’s July 15 offer of A$1.53 per share had slipped to A$1.49 adjusted for changing foreign exchange rates, Intoll said. The current offer also represents a 36 percent premium to Intoll’s share price on July 14, the day before the first takeover proposal was publicly announced.

“The directors of Intoll unanimously recommend that Intoll security holders elect to receive the cash proposal in the absence of a superior offer,” Intoll chairman Paul McClintock said in a statement. He added that the company had considered other alternatives – including a dual listing on the Toronto Stock Exchange and the acquisition of a further 10 percent in Canada’s 407 ETR road from Cintra – but concluded these options would not offer the same value for money as CPPIB’s proposal.

Not all of Intoll’s shareholders – a group that includes Macquarie (18 percent), Lazard Asset Management (11 percent) and Abu Dhabi Investment Authority (9.9 percent) – agree with McClintock. Peter Meany, head of global infrastructure securities at Colonial First State Global Asset Management, which owns a small stake in Intoll, called the offer “disappointing on a few fronts”.

“We expected a larger bump in the price following their first offer,” Meaney told the Financial Times. “I’m not sure that the independent directors have maximised the value of these assets. If you go back it was only December 2008 that the stock was around A$1.50. If you look at how the assets have performed since that time, 407 [ETR] operating earnings are up around 14 percent but they [CPPIB] are only offering a price the same as around two years ago,” he argued.

Canada’s 407 ETR highway, in which Intoll owns 30 percent, is the company's flagship asset, from which it derives 81 percent of proportionate revenue and 80 percent of earnings before interest, tax, depreciation and amortisation (EBITDA). But with 88 years left on the 407 ETR’s concession contract and annual toll increases of 7 percent for the last 10 years, Meaney believes “there is value beyond what has been offered today”.

Intoll also owns a 25 percent stake in Sydney’s Westlink M7 toll road.

The roads operator reported a full-year profit of A$1.51 billion up from a A$2.4 billion loss for the previous comparable period, the company announced last Friday. EBITDA also increased by 13 percent to A$190 million, with CPPIB’s takeover offer representing an enterprise value to full-year 2010 EBITDA multiple of 26.6 times.