The private investment arm of the Canada Pension Plan is one step closer to acquiring an Australian company that owns a 30 per cent stake in the Highway 407 toll road north of Toronto after Intoll Group’s directors formally endorsed the takeover bid on Friday morning in Australia.
The offer for Intoll Group was announced on July 15, but the Canada Pension Plan Investment Board has since increased its price per share by 2.5 cents (Australian), after adjusting for exchange rate fluctuations over the past month. The investment board felt compelled to raise its offer to $1.52 per share once it got a detailed look at Intoll's books, bringing the total deal value to $3.4-billion.
“After detailed consideration and examination of the options before us, and canvassing a range of our stapled security holders, we unanimously recommend the cash proposal to Intoll investors,” company chairman Paul McClintock said in a statement.
With Intoll’s board of directors on its side, CPPIB must hope that the firm’s shareholders approve the transaction.
To persuade them, Mr. McClintock made sure they know that the board assessed every available option, including dual listing Intoll’s securities on the Toronto Stock Exchange and acquiring an additional 10 per cent of Highway 407. “It is not clear that these strategies would deliver the same certain return of value to stapled security holders as the CPPIB proposal in an acceptable time frame,” he said.
CPPIB is interested in Intoll because its assets are simple and straightforward, André Bourbonnais, senior vice-president of private investments, said in an interview when the first offer was made. Besides partly owning Highway 407, Intoll also holds a 25 per cent stake in Westlink M7, a toll road in Sydney. These are assets that “you can own for a long period of time, that have inflation protection and generate a very large cash flow,” he noted.
Moreover, their long-term, stable revenue streams match up well with CPPIB’s long-term pension liabilities.
Because this asset class is so desired, Intoll is the second Australian toll-road operator that CPPIB has bid for in the past year. A joint bid with Ontario Teachers’ Pension Plan to acquire Transurban Group fell apart this spring, but CPPIB still holds a 13 per cent stake in that company.
The newly endorsed bid for Intoll, which has a much higher chance of succeeding, represents a 36 per cent premium over the July 14 closing price of Intoll’s securities.
