Infratil shuns AustralianSuper’s $5b offer – but investors split

Infratil’s board, and one of its largest investors, Fisher Funds, have flatly rejected AustralianSuper’s $5.37 billion offer for the ASX/NZX-listed infrastructure company, saying it under-values its assets by a large margin.

But another major investor – ACC – has indicated it’s open to the deal.

The iconic Kiwi company owns a majority stake in Wellington Airport, half of Vodafone NZ, half of Trustpower, half of fast-growing CDC Data Centres and a number of clean energy assets.

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AustralianSuper’s offer of $7.43 per share represented a $1.35 per share or 22.2 per cent premium on Infratil’s Wednesday closing price on the NZX of $6.08 – and the closing price of major Infratil investment Trustpower. The offer was announced after the NZX closed, but in their last hour of ASX trading, Infratil shares jumped 21 per cent to A$6.20.

In an NZX filing this morning, Infratil’s board revealed that AustralianSuper – the largest superannuation fund across the Tasman had made a $6.40 per share offer in October, which was nudged up in November before the non-binding bid made public last night.

The board had unanimously rejected the binding offer as “materially undervaluing Infratil’s high quality and unique portfolio of assets,” based, in part, from independent assessments it had sought from Goldman Sachs and MinterEllisonRuddWatts. It planned no further engagement.

Fisher Funds owns just over 5 per cent of Infratil. Senior Portfolio manager Sam Dickie told the Herald that, based on information available so far, AustralianSuper’s offer was not close to one that his fund would vote for.

He saw Infratil trading at a significant discount to its net asset value, even after yesterday’s last-hour surge. The management company that runs Infratil, HR Morrison & Co, had been achieving 15 to 20 per cent net asset growth per annum for more than 20 years, and “they’re only factoring that in for other one or two years,” Dickie said. The offer was not factoring in what he saw as “long runways for growth” for CDC, Long Road, Tilt and Vodafone NZ. He was interested in hearing more detail, however.

A source at UBS told the Herald the offer was “light”. He said it did not factor in this month’s “Tilt Renewables rally” since Infratil said it was reviewing its $1b stake in the NZX-listed wind farm operator.

But one of Infratil’s larger shareholders, ACC, which holds a 6.9 per cent take said the company should sit down and talk to AustralianSuper.

ACC’s head of equities Blair Cooper said the offer is a solid premium above most valuations of Infratil.

“It ticks the boxes as far as Infratil is concerned to justify engaging with AustralianSuper,” Cooper told RNZ.

“They [AustralianSuper] need to be able to firm up a bid which can be put to shareholders,” he said.

At Infratil’s August AGM, ACC unsuccessfully challenged Morrison & Co’s management fees. The Crown insurer’s investment arm argues that Morrison’s management terms are “deliberately complex” and need to be simplified, and cash incentives and elements renegotiated.

Meanwhile, Technology Users Association of NZ (Tuanz) head Craig Young told the Herald it was his organisation’s preference “for New Zealanders to own our critical infrastructure such as our communications networks.”

But he qualified, “What’s of real importance is that the network operator is well funded to continue to innovate, so that our users have access to the latest technology at affordable prices.”

The proposal is a non-binding offer by way of a Scheme of Arrangement to acquire all shares in Infratil, with a component covering Infratil’s majority holding in Trustpower.

The offer would leave Infratil’s stake in Trustpower with the existing shareholders, paying $5.79 in cash and distributing 0.2210 Trustpower shares per Infratil share.

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AustralianSuper said it believed that the proposal, if implemented, would unlock significant value for Infratil shareholders and that it “seeks engagement” with the Infratil board in relation to the proposal.

Representatives of Infratil, founded by the late Lloyd Morrison, were not available for comment to the Herald at press time.

AustralianSuper’s head of Infrastructure, Nik Kemp, said AustralianSuper, one of the world’s largest infrastructure investors with a A$20 billion global portfolio, was attracted to Infratil’s high quality portfolio of infrastructure assets in New Zealand and Australia.

“AustralianSuper currently has NZ$1.3 billion invested in New Zealand, reflecting our long-term confidence in this market.

“As a well capitalised and long term investor, we see significant potential to invest in the growth of Infratil’s assets over the long term on behalf of AustralianSuper’s members, which allows us to provide significant value to Infratil shareholders today,” Kemp said in a statement.

“We believe our proposal, if implemented, would deliver an attractive premium for Infratil shareholders,” Kemp said.

AustralianSuper will continue to seek engagement with the Board of Infratil to afford
Infratil shareholders the opportunity to assess our proposal in full,” Kemp said.

Separately Infratil, which is managed by Morrison and Co, has its stake in NZX-listed Australasian wind farm company, Tilt Renewables, up for review. At today’s prices, the Tilt stake is worth more than $1 billion.

Infratil’s portfolio comprises a raft of prime New Zealand and Australian and northern hemisphere infrastructure assets.

Wellington Airport faces a long haul to recovery after passenger traffic was decimated by Covid 19. Infratil owns 66 per cent of the airport through NZ Airports Ltd with Wellington City Council owning the rest.

The airport negotiated a $70m increase in bank lines and a $75m shareholder equity underwrite eariier this year to ensure the company had sufficient funds until traffic and revenue returned to viable levels.

S&P Global Ratings research this week said Australasian airports, including Wellington, were not expected to recover until late next year with the pace of recovery slower than previously thought.

Infratil also has a 51 per cent shareholding in Trustpower, which owns and operates 22 hydro power stations.

The company last year was part of consortium that bought Vodafone New Zealand for $3.4b.

Infratil’s latest half year result showed strong contributions from Vodafone NZ and Canberra-based CDC Data Centres.

Proportionate earnings before interest, tax, depreciation and changes in financial instruments (before incentive fees) of $229.5m in the six months to September.

This was up on the $204.2m in the previous corresponding period.

The results for the period were impacted by portfolio changes including the acquisition of Vodafone NZ in 2019, and the sale of Perth Energy, NZ Bus, and the ANU Student Accommodation business in 2019, among others.

The company has forecasted proportionate ebitdaf for the full year to March 2021 of between $430m and $470m, including an estimated $80m reduction caused by Covid-19 related restrictions, compared with $446m the previous year.

Infratil invests mostly in energy, transport and social infrastructure businesses.

“Within those sectors the priority is for companies that have an opportunity to grow so that if they are well managed they will be able to invest additional capital to improve earnings and valuations,” the company’s website says.

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Matt Goodson, managing director of Salt Funds, said the attitude of Morrison and Co to the proposal would be interesting.

He added: “An independent report in a takeover situation will be complex, given Infratil’s range of holdings.”

Oliver Mander, chief executive of the New Zealand Shareholders Association, said that if the proposal goes ahead, it would mean another unwelcome delisting from an already thin local market.

“Like other investors, we are surprised by the offer,” Mander said.

“Infratil is attractive both as an infrastructure investment and its exposure to green energy – its holdings in both (US wind and solar power company) Longroad and Tilt.

“Both positions are sought after by investors either as a defensive position or to reflect the current growth in demand for green energy worldwide,” Mander said.

“The offer at first glance seems to be complicated by the distribution of Trustpower shares and by Infratil’s recently announced review of its holding in Tilt Energy,” he said.

“That may mean that further information may be required by retail investors and other shareholders.”

Among its other assets, Infratil has significant commercial real estate portfolio, Australian retirement villages and a 40 per cent stake in Swiss green energy company Galileo.

Infratil was one of the worlds first listed infrastructure funds when it listed on the NZX in 1994. The company is owned by mostly institutional investors.

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