Yesterday, while many enjoyed a public holiday and many were not looking at the ASX, IFM (Industry Funds Management) made a bid for Atlas Arteria (ALX), the Transurban of Eastern France. The HNW Portfolios hold a 3% weight to ALX.
Key Points:
- Small creep: IFM revealed that they had increased their holding slightly to 35.7% of ALX.
- Terms: $4.75 per share increasing to $5.10 (a 19% premium to Friday’s close) if IFM get to 45%, conditional on no major changes to the portfolio and Ontario Teachers’ Pension Plan not exercising their option to sell their 33% holding in the Chicago Skyway based on a change of control provision.
- Why Now? IFM have been understandably critical of the current and previous management team’s moves to grow the business, which has seen ALX’s asset base expand, but no increases in the distribution despite higher revenues and profits from rising inflation. IFM (which holds 2 board seats) wants ALX to extract more value from its existing assets and reduce corporate costs. In February, their results management discussed growth plans, which were poorly received by the market, given that the Chicago Skyway acquisition (and equity raising) seemed intended to frustrate IFM’s 2022 bid for ALX.
- What to do: Nothing, this is likely to be the first step in the process, which is likely to be lengthy. We would expect ALX’s management to extract a higher bid from IFM in return for control.
Portfolio Strategy: ALX exposes the Portfolio to desirable monopoly assets and enjoys mandated price increases. We are pleased to see IFM eventually launching a bid for ALX. ALX is an under-researched stock that offers an attractive valuation and trades at a healthy 8.1% dividend yield.
ALX gained +13.3% yesterday to close at $4.91
