Minority rapport

As the adage goes, caveat emptor, or buyer beware. A group of investors had bought a minority stake in Spain’s toll road developer Cintra, keen to tap into its long term potential as an infrastructure punt. But now Cintra’s majority owner, the local Ferrovial, wants to do a stock swap. The minor shareholders don’t like it, but they’re probably powerless to stop it.

Last month the investors – Britain’s Universities Superannuation Scheme (USS); Australia’s CP2 and Magellan Asset Management; and America’s State of New Jersey Division of Investment – sent a letter to Cintra’s board opposing the buyout. They said it would expose them to countries and business sectors they didn’t want to touch, not to mention the risks from Ferrovial’s heavy debts.

“We invested in Cintra because it is an infrastructure asset,” said Peter Doherty, CP2’s managing director. “Had we wanted to invest in Ferrovial, we would have done so. It is a completely different asset.”

Ferrovial owns 67 percent of Cintra. The remaining 33 percent is publicly traded. Together, the four signatories represent about 13 percent of the publicly traded shares and 4.2 percent of the firm’s total share capital. But they don’t have any representation on Cintra’s board, and so there’s little they can do if Ferrovial decides to press ahead with the offer.

And for Ferrovial this is a good move. Analysts say taking full control over Cintra would give it access to the road operator’s healthy cash flows, and nearly €400 million in cash reserves. It would also allow it to use some of Cintra’s stronger road assets, like Canada’s 407 ETR, as collateral against some of its bank debt.

For embattled Ferrovial, under pressure from investors to deleverage, these benefits may well trump shareholder relations.