Transurban's Largest Shareholder to Keep Stake, to Push for Board Changes

CP2 Ltd., Transurban Group’s biggest shareholder, said it intends to hold onto its stake in the Australian toll-road operator and will push for boardroom changes after a bid to buy the company with two Canadian pension funds was rejected.

“We really haven’t even considered exiting,” Peter Doherty, chief executive officer of the Sydney-based asset manager, said in an interview today. “We’re certainly seeking board change.”

CP2, Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan -- which had owned a combined 42.4 percent of the company -- were vying for control of assets including the Pocahontas 895 in Virginia and four Sydney toll roads. Upon rejecting the A$7.2 billion ($6.1 billion) offer, Transurban said it would go ahead with a A$542.3 million share sale to fund its purchase of the Sydney Lane Cove Tunnel.

Australia’s Takeovers Panel on May 25 rejected a request from CP2 for interim orders to halt the share sale by Melbourne- based Transurban, and said it is yet to decide whether it will grant a final order that would stop the sale. It has already raised about A$410 million at A$4.60 a share from the institutional component of the equity offering.

“Our issue with Transurban is ineffective and inappropriate governance,” Doherty, who is also CP2’s managing director, said. “The key issue is they have a board that’s determined to grow at all costs. One of the very early rules you learn in investments is a good asset does not make a good investment.”

Transurban on May 24 said it has a “clear view” of the long-term value of the company and the takeover bid didn’t reflect its growth prospects.

Transurban shares slipped 0.5 percent to close at A$4.37 in Sydney.

Board Seat

CP2 will potentially seek a seat on Transurban’s board, something it has hinted at though never openly asked for, Doherty said. Approaches so far have been rebuffed by the board, he said.

“We would have thought as the largest shareholder with 15 percent, that would avail us to a board seat,” he said.

The issue of CP2 obtaining a seat on Transurban’s board is “tricky,” said Andrew Chambers, an infrastructure analyst at Austock Group Ltd.

“On the one hand, as a major investor, I can certainly see their argument for a seat on the board,” he said in a telephone interview. “But they’re also a competitor, because they bid for assets that Transurban may be interested in. We always have a preference for boards that are dominated by independent directors.”

CP2 plans to push Transurban’s board to avoid the method of equity raising they have undertaken to raise funds to buy the Sydney tunnel, Doherty said.

“No more placements and no more accelerated rights issues,” he said.

Doherty will seek regulatory oversight, possibly from the Australian Securities and Investments Commission, into Transurban’s latest equity raising and governance, he said.

While an entitlement, rather than a share placement, would be a better option to avoid diluting shareholder interest, Austock’s Chambers said a blanket rule against all such methods may be a step too far.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

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