CPPIB bids $3.2-billion for Australia's Intoll

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The Canada Pension Plan Investment Board has put forward a conditional offer for Intoll Group, an Australian company that owns a 30-per-cent stake in the Highway 407 toll road north of Toronto.

The move is CPPIB's second attempt to take over an Australian toll-road operator this year after a joint bid with Ontario Teachers' Pension Plan for Transurban Group fell apart this spring.

If successful, this $3.2-billion offer to take Intoll private would make it the pension fund's largest direct investment. CPPIB has offered $1.53 (Australian) in cash for each stapled share, a 38-per-cent premium above Intoll's $1.115 closing price on Wednesday.

Intoll looks good to CPPIB because its operations are straight-forward and the fund knows exactly what it would be buying, said André Bourbonnais, senior vice-president of private investments for CPPIB. He also noted that these are assets "you can own for a very long period of time, that have inflation protection and generate a very large cash flow."

CPPIB has been on the hunt for a road-toll operator because the long-term, stable revenue streams match up well with its long-term pension liabilities.

Intoll was spun out from Macquarie Infrastructure Group in January, but Macquarie still owns 18 per cent. Other holders include Abu Dhabi Investment Authority (10 per cent), and Lazard Asset Management (11 per cent).

Besides its 30 per cent ownership of Highway 407, Intoll has a 25-per-cent stake in Westlink M7, a toll road in Sydney.

After receiving CPPIB's non-binding offer, Intoll agreed to open up its books for three weeks so the fund can get a detailed look before making a formal, binding bid. However, the pension fund said that it isn't seeking exclusivity and that it expects other bidders to come forward.

The deal is getting mixed reviews down under with some talk of CPPIB getting the company for cheap. Intoll's net asset value is estimated at $1.72 per share but it traded at $1.115 before the bid. Even with the 38-per-cent premium offered, the bid price is still lower than what the assets are worth.

Intoll's stake in the 407 ETR accounts for the majority of this value and is the reason why CPPIB's offer has two components: A$0.23 in cash, and the Australian dollar equivalent of $1.186, which represents the Canadian assets.

CPPIB's offer comes after caustic talks with Transurban amounted to a failed takeover offer this spring. Although the fund's joint-bid with OTTP and Australian fund manager CP2 was ultimately sweetened to $6.4-billion, Transurban's board claimed it was inadequate.

OTTP sold its position in Transurban after talks fell apart, but CPPIB still holds a 13 per cent stake.

Intoll's shares closed at A$1.45 in Australia on Thursday, up 30 per cent.