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CP2 to Buy Toll-Road Owner ConnectEast in $2.4 Billion Deal

CP2 to Buy Toll-Road Owner ConnectEast in $2.4 Billion Deal
Vehicles travel along Transurban Group's CityLink toll highway outside of Melbourne, Australia. A takeover of ConnectEast Group would hand CP2 Ltd., which manages about A$2 billion in funds, ownership of the EastLink toll road in Melbourne after the fund managers offer for rival highway operator Transurban Group was rejected in May 2010. Photographer: Luis Enrique Ascui/Bloomberg

CP2 Ltd., an Australian infrastructure fund manager, agreed to buy the rest of ConnectEast Group in a deal valuing the toll-road operator at A$2.17 billion ($2.4 billion).

Shareholders should accept the cash offer of 55 Australian cents a share unless there’s a higher bid, ConnectEast’s independent directors said in a statement today. The offer from Horizon Roads, an investment vehicle managed by CP2, is 22 percent higher than the stock’s close yesterday. CP2 owns 35 percent of ConnectEast.

A takeover would hand CP2, which manages about A$2 billion in funds, ownership of the EastLink toll road in Melbourne after the fund manager’s offer for rival highway operator Transurban Group was rejected in May 2010. Today’s agreement may trigger a counterbid, said analysts at Commonwealth Bank of Australia.

The offer may “flush out other potential buyers,” Paul Johnston, a Melbourne-based analyst at Commonwealth Bank, said in a note. Transurban “is in a unique position” to cut costs after a takeover and could offer as much as 60 cents for each ConnectEast share, he said.

ConnectEast shares jumped 20 percent to 54 cents at 1:10 p.m. in Sydney, set for a record daily gain. Transurban rose 2.5 percent to A$5.36, the largest gain since April 13.

“Before today, we’ve said ConnectEast was fully valued,” said Wesley Ballantine, a spokesman for Transurban. “Today’s actions don’t change that view.”

Average Premium

The average premium offered by similar-sized public thoroughfare deals in the past five years is 21 percent, according to data compiled by Bloomberg. ConnectEast said it’s being advised by Macquarie Group Ltd. and Blake Dawson.

After failing to buy Transurban, CP2, which owns 13 percent of the company, said last year that it planned to quadruple funds under management by betting on growth in infrastructure assets.

Peter Doherty, the Sydney-based company’s late managing director, said in June 2010 he was focused on “long-term, boring assets” and he was investing with a 40-year time horizon. Doherty, who died in March this year, said he saw no need to buy out ConnectEast. ConnectEast has now reported four years of consecutive losses.

‘Patient’ Investors

“ConnectEast is a good asset for patient, long-term investors,” CP2 Managing Director Syd Bone said in a separate statement. “From a customer, management and employee perspective, the operations of EastLink will be business as usual.”

The EastLink toll road runs through the eastern suburbs of Melbourne, Australia’s second-largest city.

To fund the offer, CP2 has raised A$1.4 billion from its investor group, which includes National Pension Service of Korea and Teachers Insurance and Annuity Association of America, the fund manager said. That matches the amount CP2 would need to buy the remaining 65 percent of ConnectEast at 55 cents a share.

Shareholders who don’t accept the cash offer from Horizon Roads may opt for securities in an unlisted registered management investment plan, allowing them to keep an indirect investment in ConnectEast, Melbourne-based ConnectEast said.

Canada Pension Plan Investment Board in August 2010 agreed to buy Intoll Group for A$3.44 billion to gain stakes in toll roads in Toronto and Sydney.

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