International toll roads operator Atlas Arteria (ASX: ALX) has committed to invest $2.94 billion in a US asset despite IFM Investors, which is its largest shareholder, strongly opposing the deal.
Atlas Arteria’s commitment to take a 66.67% stake in the Chicago Skyway is to be funded by a $3.1 billion equity raising.
In early June, IFM paid $8.10 a share to acquire almost 15% of Atlas Arteria. Notifying the company on 9 June, IFM requested access to non-public information to help it decide whether to submit a non-binding indicative proposal to acquire the rest of the company. Atlas Arteria announced on 10 June that it had considered IFM’s request but had decided not to provide information “at this time”.
After that, IFM raised its stake to around 19%, just under the 20% level at which it would be required to provide a formal takeover offer for the company. No such offer has yet been made and Atlas Arteria’s acquisition of the Chicago Skyway would appear to make that less likely.
Atlas Arteria’s commitment to buy the stakes of OMERS Infrastructure and CPP Investment Board, includes an option for Ontario Teachers’ Pension Plan (OTPP), which holds the remaining 33.33%, to sell at a 7.5% premium to fair market value, if there is a change of control at Atlas Arteria.
On 31 August, Atlas Arteria reported statutory net profit after tax of $117.1 million for the first half of 2022 compared with a revised net profit of $41.2 million for the same period in 2021. The 2021 figure would, however, have been $56.2 million without the accounting impact of a capital restructure in one of the businesses in which Atlas Arteria is invested, Warnow Tunnel in Rostock, north-east Germany.
Atlas Arteria said its first-half 2022 revenue had benefited from progressive removal of government imposed COVID-19 restrictions in all the jurisdictions in which it was invested but overall average traffic was still below pre-COVID 19 levels.
The company said it intended to maintain the first half dividend rate of 20 cents per share, its highest level to date, for the second half of the 2022 financial year and provided guidance of 40 cents per share for the 2023 financial year; it said this was a sustainable level going forward as distributions would be supported by periodic capital releases from Chicago Skyway.
The 2016 acquisition of the Chicago Skyway by the three Canadian pension funds had been at an enterprise value/EBITDA multiple of 37.4x, Atlas Arteria said. It was now acquiring its majority stake at 43.2x last twelve months EBITDA and 37.6x 2024 estimated EBITDA.
News of IFM’s initial acquisition of share in Atlas Arteria in June lifted Atlas Arteria’s share price from $7.08 to $8.25. The share price remained at around $8 until reports of the likely Skyway deal sent it lower and it fell to $6.59 after the deal was announced on 13 September.
Opened in 1958, the Chicago Skyway is a 12.5km elevated toll road which runs from the south side of Chicago to the Indiana border. The road is operated under a concession lease that has 81 years to run. Investing in the asset will increase Atlas Arteria’s average portfolio concession life from 18.3 years to 37.3 years.
The Skyway concession agreement allows for tolls to escalate at the greater of US CPI and US nominal GDP per capita.
On 12 September, IFM told Atlas Arteria it did not support the company making an equity-funded acquisition of Atlas Arteria at the likely sale price because it believed the acquisition would be significantly value destructive.
IFM said that if the company continued with this course of action IFM GIF (Global Infrastructure Fund) would consider all legal options available to it including seeking an accelerated board transition by way of an extraordinary general meeting, to protect its interests as a shareholder.
IFM said the company should focus on funding, and creating value from, its existing asset portfolio.
Atlas Arteria is currently invested in four businesses: a 31.14% interest in the APRR Group and the smaller ADELAC toll road business in France; 100% of the Dulles Greenway toll road in Virginia in the US: and 100% of the Warnow Tunnel in Germany.
IFM is owned by a group of Australia’s largest superannuation funds. The firm makes direct investments on behalf of those super funds, but its Global Infrastructure Fund also includes as investors overseas investment institutions.
Image: The elevated Chicago Skyway.