Australia | Aug 05 2008
By Greg Peel
It must have taken all of five minutes for the board of port/rail infrastructure operator Asciano ((AIO)) to reject a $4.40 bid from a private equity consortium. The team of TPG Capital and Global Infrastructure Partners has made what it calls an “unsolicited non-binding indicative proposal” to acquire 100% of Asciano’s shares. Ostensibly this is just a ploy to get a look at the company’s books.
For all analysts agree the bid is more than opportunistic. It’s only been a bit over a year since Asciano spun out of Toll Holdings ((TOL)), and the share price has since been on a one-way slide from around $11 to under $3. However the low price represents a significant discount to the current trading multiples of comparable port/rail infrastructure players, and the average price target in the FNArena database for Asciano has remained at $5.17 for some time. Despite offering a 20% premium to the closing price on the day before the bid, $4.40 still falls way short of analyst valuations.
We may have seen the end of the glory days of private equity domination, but the rule of thumb that at least a 30% control premium is needed to take over a company still stands. Throw in the 16% stock price bounce on Friday, and the bid now looks positively pathetic. Analysts suggest the private equity team would have to bid at least something over $5.00 before the Asciano board would be prepared to open the books for due diligence.
But ultimately, it would have to pay a lot more. Analysts have put a real value of $6.70-6.80 or more on the stock despite their low target prices and the even lower trading price. Asciano’s biggest problem at the moment is funding its intended capex spend, and the market had been becoming more concerned the company would have to announce a capital raising at its upcoming result. No doubt this concern was not lost on the suitors.
What the bid does do, thus, is muddy the waters somewhat. It would have been a tough decision for Asciano to try to raise capital at such a share price discount, but with an offer on the table it’s a bit tricky to try to raise any capital now. In rejecting the bid the board will obviously be hoping we haven’t heard the last from the consortium.
And that is very unlikely, for these are no cowboys. TPG was part of the failed Qantas bid last year and GIP is a joint venture of Credit Suisse and GE infrastructure with a capital base of about US$5.6bn, ABN Amro reports. As GSJB Were suggests, the buyers have “deep pockets”.
So with the shares now trading up towards $5.00, analysts are suggesting investors hang on for the ride. Deutsche bank has pulled back from Buy to Hold, but this a policy move when a stock is “in play”. The B/H/S ratio in the FNArena database is now 4/5/0.
To quote Weres, “Stay tuned, this has the potential to get very interesting…”