KKR, Ontario in $5bn Spark Infrastructure play

Spark told the Australian Securities Exchange that the trading halt would last until Friday or until the company makes an announcement.

Spark Infrastructure is expected to announce to the market on Thursday that it has received an approach from Canadian pension fund Ontario Teachers Pension Plan and private equity firm Kohlberg Kravis Roberts worth close to $5bn for the listed electricity asset owner.

The company entered a trading halt on Wednesday after DataRoom revealed that there had been talk in the market that the company was in the crosshairs of a suitor.

Spark told the Australian Securities Exchange that the trading halt would last until Friday or until the company makes an announcement.

DataRoom understands that the consortium has an interest in buying Spark at a premium of about 20 per cent to where its share price was recently trading – about $2.25.

This would see an offer put forward of about $2.70, or close to $4.74bn.

Shares had rallied more than 8 per cent on Wednesday on the back of the speculation revealed by The Australian’s DataRoom column.

Spark recently launched a beauty parade to find a new defence adviser and has appointed Goldman Sachs.

In the past, Spark has worked with Macquarie Capital, which offered assistance last year when Spark considered buying a larger share of its NSW electricity transmissions business, TransGrid.

This was just months before Canada’s OMERS instead bought an interest of almost 20 per cent from Wren House.

It comes at a time when listed APA Group, which now counts former Morgan Stanley infrastructure banker Julian Peck as its head of strategy, has told the market that it has an interest in regulated electricity assets when it comes to acquisitions.

Macquarie Infrastructure and Real Assets has also been busy lately on the mergers and acquisitions front, as has been Morrison & Co, which led a consortium that acquired an interest in Telstra’s telecommunication towers for $2.8bn.

APA has a close relationship with former suitor CKI, which jointly owns electricity assets with Spark.

DataRoom understands that the Canadian pension fund CDPQ has looked at acquiring Spark in the past and has been keeping a close watch on the $4bn infrastructure owner.

But KKR is known to be flush with cash and in search of opportunities.

Mergers and acquisitions activity has hit fever pitch due to the low interest rate environment and unlisted parties holding large amounts of capital.

MIRA is currently assessing the merits of a potential rival bid for Sydney Airport after an IFM-led consortium offered $22.3bn for the business last week.

But Spark’s size makes it a real option for a private offer for many infrastructure buyers.

The “poles and wires” electricity assets that Spark owns are attractive investments for suitors.

However, one of the less appealing factors about the company is that it comprises minority stakes in electricity assets that are controlled by Hong Kong investor CKI.

This leaves any buyer with little control over the company’s destiny.

CKI purchased Duet Group in 2016 for at least $7bn, but when it made efforts to buy APA Group for $13bn in 2018 it was blocked from the Foreign Investment Review Board.

Some believe it is unlikely the Hong Kong-based group would gain FIRB approval to buy Spark, while IFM and AustralianSuper are seen as unlikely candidates.

AustralianSuper is currently selling down its interest in electricity assets, offloading a stake in NSW electricity distribution business Ausgrid, expected to be about 16 per cent and worth about $2bn.

Canadian funds such as the Canadian Pension Plan Investment Plan and Ontario Teachers’ Pension Plan, CDPQ, Aware Super and potentially Queensland Investment Corporation and MIRA are known to be lining up for the $2bn-odd interest.

Spark owns stakes in NSW electricity transmission company TransGrid, in which it holds a 15 per cent interest, South Australia Power and Victoria’s largest electricity suppliers, CitiPower and Powercor.

The share price is lagging pre-pandemic levels.

Spark’s top shareholders include Lazard Asset Management, Franklin Resources, Legg Mason Asset Management and Maple Brown-Abbott.

DataRoom understands that they have not been advised about the approach from the company or the party involved.

Magellan Financial also has a significant holding.

For 2020, Spark made a $105m net profit attributable to shareholders, up 32.7 per cent from the previous year.