Transurban snubs Canadian pension funds’ A$6.8bn bid

The Australian-listed toll road operator has rejected the pensions’ offer to acquire 100% of the group, although it has left the door open for improved bids.

Australian toll road investor Transurban Group has rejected a takeover bid from two Canadian pension plans, prompting its share price to rise dramatically amid speculation that an improved offer could follow.

Canada Pension Plan Investment Board (CPPIB) and Ontario Teachers’ Pension Plan (OTPP) said in a joint statement published today that they submitted an indicative proposal last Tuesday (October 27) to acquire 100 percent of Transurban. The pensions said their offer would have given Transurban’s shareholders the opportunity to choose between a cash price of A$5.25 per share, equity in an unlisted group, or a combination of both options. The funds said the A$5.25 price represents a 20 percent premium to Transurban's closing share price yesterday and a 25 percent premium to Transurban’s volume-weighted average share price for the past three months. This price values Transurban at around A$6.8 billion (€4.16 billion; $6.2 billion). The pensions said in the statement that this offer provided Transurban’s shareholders with “compelling value for their investment.”

CPPIB and OTPP already own roughly 26 percent of the Australian firm.

In a filing to the Australian Securities Exchange, Transurban said it had rejected the pension funds’ proposal on its current terms after consulting its advisors. However, the toll road operator did suggest that the door could remain open for an improved offer, adding “the board of Transurban remains willing to engage on bona fide proposals which provide appropriate value and certainty to security holders in a change of control transaction.” CPPIB and OTPP reflected this optimism for future negotiations in their statement, saying they “note Transurban’s willingness to enter into constructive discussions […] and look forward to the opportunity to discuss the details of the Proposal with Transurban.“

Following Transurban’s rejection of the offer, speculation that another offer may follow caused the group’s share price to rocket, closing at A$5.24 earlier today, up almost 20 percent.

Transurban owns and operates stakes in eight toll roads across Australia and the US. In August it reported a 11.5 percent increase in earnings for the year ending June 30, recording an EBITDA of A$583.4 million. Transurban’s largest shareholder is currently Australian fund manager CP2, which owns just over 15 percent of the company.

CPPIB’s fund totalled C$116.6 billion (€73.7 billion; $109.5 billion) at the end of June, while OTPP’s fund had C$87.4 billion of assets at the end of 2008, according to the pensions’ respective websites. In June CPPIB reached an agreement to acquire Macquarie Communications Infrastructure Group for A$1.64 billion, after previously having a lower offer rejected.

Transurban is being advised by Lazard and Mallesons. CPPIB and OTPP are being advised by Goldman Sachs and J.P. Morgan.