Spark Infrastructure rejects $5bn takeover offer to keep options open
While rejecting their two bids, Spark says it will engage with equity giant KKR and Canadian pension fund Ontario.
Poles and wires operator Spark Infrastructure has kept the door ajar for a higher takeover bid from investment giant KKR and a Canadian superannuation fund after rebuffing a $5bn cash offer while indicating it was open to further negotiations.
The consortium lobbed a first bid to Spark in May and a second higher offer earlier in July. While both buyout tilts were rejected, Spark said it would engage with the consortium and provide limited information as part of constructive talks although that would not include due diligence.
As foreshadowed by The Australian’s DataRoom column, KKR and Ontario originally lobbed a price of $2.70 per security, which was unanimously rejected by the board and due diligence was refused.
The investment behemoths then returned with a $2.80 per security offer which was also knocked back by Spark, which said it undervalued the company. The latest offer is worth $2.74 per security after dividend payments and represents a 21 per cent premium compared with Spark’s July 13 closing share price.
Investors said the bid price was fair and Spark now faced pressure to engage further and potentially open its books to the suitors.
“Overall we believe the bid prices appear fair and we expect management to be under increasing pressure to engage further with the consortium, or disclose a better pathway to realising value,” JP Morgan analysts said.
Spark chief executive Rick Francis said it would consider further offers or rival bids amid speculation others may be circling.
Investment bankers at Macquarie Capital are believed to be working on a rival bid for an unlisted fund, DataRoom reported late on Thursday.
“The board is completely open to an approach or other approaches for that matter. We are not averse to control passing,” Mr Francis told an Australian Shareholders Association briefing on Thursday.
Spark owns stakes in $17bn of network assets across three states, including distribution in South Australia, western Victoria and the Melbourne CBD as well as NSW transmission business TransGrid.
“What we have here are very scarce assets, very scarce opportunities in the listed market, they’re very high quality and very hard to get,” Mr Francis said.
Spark sought to underline its growth options with plans for a renewable energy hub in southwest NSW with capacity of up to 2500 megawatts, nearly matching the size of Australia’s biggest coal plant.
The Dinawan Energy Hub would combine wind, solar and battery storage and would help to offset the impact of coal-fired plants closing over the coming years, according to the company.
The bid underlines major interest by investors in gaining access to infrastructure assets with the $5bn offer for Spark following a huge $22bn bid for Sydney Airport and a $8.8bn tilt for Boral by Kerry Stokes’ Seven Group.
KKR has previously linked up with Ontario to take a major stake in Finnish electricity company Caruna while the duo along with partner Queensland Investment Corp are in the race to buy a 70 per cent interest in Optus’s $2 billion Australian telecommunication tower portfolio.
Spark’s shares rallied a further 6 per cent on Thursday to close at $2.63 after an 8 per cent bounce on Wednesday following speculation revealed by The Australian’s DataRoom column.
Spark – chaired by Doug McTaggart and with Rick Francis as CEO – has top shareholders including Lazard Asset Management, Franklin Resources, Legg Mason Asset Management and Maple Brown-Abbott.
Electricity giant TransGrid approved a $2.2bn power cable to transmit renewables between NSW and South Australia despite flagging concerns over difficulties sealing long-term financing, potentially harming the go-ahead for future transmission projects.
For TransGrid getting a deal over the line faced setbacks after a push for a rule change – easing hurdles for investors to secure debt – was rejected by the Australian Energy Market Commission.
Lenders were reluctant to agree to a long-term deal after TransGrid failed to convince the rule-maker that it needed to access cashflows sooner to guarantee the project. That meant cash flows during the early part of the development would not support 60 per cent of the project being debt funded and receiving an investment grade credit rating.
