Nov. 5 (Bloomberg) -- Transurban Group, Australia’s biggest toll road operator, rejected an unsolicited A$6.8 billion ($6.2 billion) takeover offer from Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan.

The cash and stock offer valued Transurban shares at A$5.25 each, 20 percent more than yesterday’s closing price, the Canadian funds said in a statement today. Melbourne-based Transurban said the offer was “incomplete” and it is willing to engage on “bona fide proposals.”

Transurban jumped 19 percent in Sydney as Canada Pension and Ontario Teachers, with $190 billion of assets, said they will seek discussions on the proposal. The two funds, with a combined 28 percent stake in Transurban according to Bloomberg data, are seeking to buy infrastructure after losing on stock investments last year.

“They’re already a big shareholder in Transurban, and they understand the assets very well,” said Mark Freeman, chief investment officer at Australian Foundation Investment Co., Transurban’s fifth-largest holder according to Bloomberg data. “The revenues are fairly secure and reasonably predictable.”

When asked whether AFIC would sell its holding, Freeman said it would assess offers and that “our starting proposition is that we’re very comfortable with our investment and we’re long-term holders.”

Pocahontas, Hills

Transurban owns toll roads including the Pocahontas 895 in Virginia and the Hills M2 in New South Wales, Australia’s most populous state, where the population is increasing by 1.6 percent a year, according to the nation’s statistics bureau.

Investors are seeking transport-related assets as a way to bet on an economic recovery. Warren Buffett’s Berkshire Hathaway Inc. agreed this week to pay $26 billion for the 77.4 percent of railroad Burlington Northern Santa Fe Corp. it didn’t own.

Ontario Teachers’ in August raised its stake in Maple Leaf Sports and Entertainment, owner of the Toronto Maple Leafs and Toronto Raptors sports teams. Canada Pension spent A$1.64 billion in June to buy Macquarie Communications Infrastructure Group, an investor in radio transmission towers, raising its initial offer by 20 percent to win shareholder approval.

‘Willing to Engage’

Transurban’s board “remains willing to engage on bona fide proposals which provide appropriate value and certainty to security holders,” it said today. The company is trading at a price-to-book ratio of 1.9 times, according to Bloomberg data. Macquarie Infrastructure Group, which owns stakes in toll roads in six countries, has a price-to-book ratio of 0.7 times.

Transurban shares added 85 Australian cents to close at A$5.24 in Sydney. They peaked at A$8.56 in May 2007. The benchmark S&P/ASX 200 Index fell 0.7 percent.

“The market had missed the value, that was pretty obvious,” said Andrew Chambers, an analyst at Austock Group Ltd. in Melbourne. We wouldn’t support any takeover at less than A$5.80 a share.”

De-listing Transurban “would offer the Canadian’s significant potential management cost savings,” he said. The company has been trading at a price that implies a 12 percent internal rate of return, Chambers said in a note, above the 9 percent to 10 percent average for toll road companies. A 9 percent return would imply a price of A$6.10 a share, he said.

Past Deals

Transurban bought Hills Motorway Group for A$2.07 billion in April 2005, giving it control of Sydney’s M2 toll road. In December 2006 it agreed to buy Sydney Roads Group, which operated three highways in Australia’s most populous city, for as much as A$1.26 billion in stock, in what was a 16 percent premium to the previous closing share price.

Transurban’s head of investor relations Henry Byrne declined to comment beyond the statement. Ontario Teachers spokeswoman Deborah Allan and Canada Pension Plan spokeswoman May Chong didn’t immediately respond to telephone messages left after hours.

Transurban is already Ontario Teachers’ largest investment in a listed company in Australia, and third biggest stock investment worldwide, according to the pension fund’s latest annual report. The fund sold a stake in Macquarie Infrastructure Group, an Australian company that owns toll-road stakes in six countries, for A$342.6 million on Oct. 28, it disclosed in a regulatory filing.

Stock Losses

Ontario Teachers held C$87.4 billion ($82 billion) in net assets at Dec. 31 last year, according to its Web site. The fund manager in April said it will pare back on stocks and bonds this year after losing a record 18 percent on its investments in 2008 amid the worst financial crisis since the Great Depression.

Canada Pension Plan had a C$120 billion dollar investment portfolio at June 30. The fund in May said its investment decline for the fiscal year ended March 31 totaled C$23.6 billion, or 19 percent.

Transurban posted a loss of A$16.1 million for the year ended June 30, according to a company statement issued Aug. 26.

The company’s assets include the 22-kilometer (14 miles) CityLink highway in Melbourne, which handled an average of 675,113 vehicles a day in the three months ended September, according to an Oct. 12 statement. The company also owns half of the Westlink M7 in Sydney, used by some 126,405 vehicles daily.

In the U.S., Transurban is part of a group developing high occupancy toll lanes on the Capital Beltway around Washington. The company is in talks on a similar project for a highway linking the U.S. capital to Virginia.

The Canadian funds have retained Goldman Sachs Group Inc. and JP Morgan Chase & Co as their financial advisers.

To contact the reporters on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.

Last Updated: November 5, 2009 02:24 EST