AusNet Services shares hit record highs after granting due diligence to $9.6bn Brookfield Asset Management offer
Shares in AusNet Services hit a record high on Monday after Canadian giant Brookfield lobbed a $9.6bn bid for the Victorian electricity operator.
Shares in AusNet Services hit a record high on Monday after Canadian giant Brookfield lobbed a $9.6bn bid for Victorian electricity operator, the latest big ticket deal as international investors swoop on Australia’s infrastructure assets.
The major infrastructure player, which owns and operates the Victorian electricity transmission network – one of five electricity distribution networks, and one of three gas distribution networks in the state – told the ASX on Monday it had granted Brookfield Asset Management due diligence on its third bid.
The unsolicited, indicative, non-binding and conditional proposal from Brookfield is offering AusNet shareholders $2.50 cash per share.
The news saw AusNet shares leap 22 per cent to hit a record high of $2.42 at market open, before closing at $2.36, up 19.19 per cent.
AusNet Services is 32.3 per cent owned by Singapore Power, 19.9 per cent owned by State Grid of China, and around 48 per cent publicly owned.
The $2.50 offer price represents a 26 per cent premium to AusNet’s closing price on Friday of $1.98 per share. and values AusNet at $9.6bn or $17bn on an enterprise value basis, including net debt.
It also comes after two prior and unsuccessful bids of $2.35 on August 30 and then a subsequent offer of $2.45.
The third offer is to “be reduced to the extent that AusNet pays or declares a dividend to its shareholders prior to the implementation of the proposed transaction,” AusNet said, adding it had granted due diligence to Brookfield.
“Following careful consideration, and consultation with its advisers, the board of AusNet considers that it is in the best interests of AusNet’s shareholders to engage further with Brookfield on the indicative proposal,” it said.
“Accordingly, AusNet has decided to provide Brookfield with the opportunity to conduct due diligence on an exclusive basis to enable it to put forward a binding offer.”
The deal comes amid a recent flurry of listed infrastructure deals: Just last month Spark Infrastructure accepted a $5.2bn takeover from a consortium led by KKR while Sydney Airport has opened its books for a $23.6bn offer from a group led by IFM.
Also on Monday it was confirmed that Transurban and its investment partners have paid $11.1bn to buy the remaining 49 per cent stake in the WestConnex motorway from the NSW government.
The Australian understands the capital for the deal is coming from Brookfield’s open-ended super core fund, which was established in 2018 to invest in core infrastructure assets.
The Canadian asset manager is attracted to the growth prospects of AusNet’s more than $11bn regulated and contracted asset base, as the energy transition accelerates.
But Brookfield has recently been active elsewhere in Australia, joining the bidding war for airline Virgin Australia last year, while its majority-owned subsidiary Oaktree Capital offered to fund a buy out of billionaire James Packer’s stake in casino giant Crown Resorts earlier this year.
If a deal is reached at the end of due diligence, it would be subject to the execution of a scheme of implementation deed, unanimous AusNet board support and the approval of the government’s Foreign Investment and Review Board.
AusNet said the board currently intends to “unanimously recommend that shareholders vote in favour of the proposal” in the absence of a better deal, subject to an independent expert concluding that the “proposed transaction is in the best interests of AusNet shareholders.”
Analysts at JP Morgan said they did not anticipate a competing offer, noticing the price “looks full” at a higher EV/regulated asset base multiple than the successful bid for Spark Infrastructure.
They said a major hurdle for the deal would be “the potential blocking stake with Singapore Power and State Grid representing a combined 50 per cent of the shares outstanding.”
S&P Global Ratings said Ausnet’s A-/Stable rating “could fall at least one notch” if the takeover succeeds.
“Brookfield has generally adopted an aggressive approach to its investments in Australia,” it said.
“It has generally done this by higher debt funding of capital expenditure and the maintenance of stable but high distributions.”