Move sets scene for takeover bid

THE move by listed infrastructure fund Duet Group to flag the internalisation of the fund's management is likely to be followed by a takeover bid for the $2.3 billion fund.

By InvestSMART · 1 Aug 2012

By InvestSMART ·
1 Aug 2012

Comments

THE move by listed infrastructure fund Duet Group to flag the internalisation of the fund's management is likely to be followed by a takeover bid for the $2.3 billion fund.

Externally managed funds by their very nature are difficult to take over due to the various conditions and poison pills often embedded in their management agreements.

In Duet's case it will be one of the last remaining listed infrastructure funds left to bring their management in-house after Macquarie raised more than $400 million in 2009 internalising a suite of managed listed funds.

The tide has well and truly turned against externally managed funds on the basis that most charged excessively high fees and had interests that where not necessarily aligned to those of investors. The internalisation of Duet's management if approved will be a nice one-off payment for its joint external managers AMP and Macquarie Group.

Between them, they will get an estimated $98 million in cash and securities, which is a pretty rich compensation package, albeit not the most generous that has been received to ditch external managers in the past.

It comes at a time when Macquarie is grappling with life as an investment bank during tough times and AMP is digesting its AXA acquisition.

Duet was established in June 2003 as wholesale unit trusts. A year later it listed on the ASX and AMP established a joint venture by selling to Macquarie 50 per cent of the entities that held the Duet management rights. Duet's portfolio of assets includes investments in the Dampier Bunbury Pipeline, United Energy Distribution and Multinet Gas.

There is a lot of activity going on in the listed infrastructure space at the moment with Australian Infrastructure Fund and Hastings Funds Management announcing in June that the board was in talks about the internalisation of management.

Meanwhile, Hastings and Hastings Diversified Utilities Fund are at the centre of competing bids from Pipeline Partners and APT Pipelines, and received a decision by the Takeovers Panel yesterday that it had declined to conduct proceedings on an application from an investor, AFIC, into the affairs of Hastings. The application concerned the provision of a proper and full independent evaluation of the internalisation of management of Hastings Diversified in the context of a takeover bid for Hastings by Pipeline Partners. The takeover battle ensues.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What change has Duet Group announced and why does it matter to investors?

Duet Group has flagged a plan to internalise the fund's management — moving management in‑house instead of being externally managed. For investors this matters because internalisation can change fees, align manager incentives with shareholders, and can also trigger takeover interest in a listed infrastructure fund valued at about $2.3 billion.

What does 'internalisation of management' mean for a listed infrastructure fund like Duet?

Internalisation means the fund brings its management team and functions under the fund’s own control rather than paying an external manager. It often reduces conflicts of interest and high external fees, and typically involves a one‑off compensation payment to the existing external managers if approved by shareholders.

Could Duet’s internalisation move lead to a takeover bid?

Yes — the article says the internalisation announcement is likely to be followed by a takeover bid. Internalising management can remove takeover obstacles tied to external management agreements and make a fund a more straightforward acquisition target.

How much compensation will Duet’s external managers receive if internalisation is approved?

If approved, Duet’s joint external managers, AMP and Macquarie Group, are expected to receive an estimated $98 million in cash and securities as a one‑off compensation package.

Why are externally managed funds often difficult to take over?

Externally managed funds commonly have complex management agreements with conditions and 'poison pill' provisions that make takeover attempts harder. Those contractual protections can block or complicate offers from potential buyers.

What are some of the key assets in Duet Group’s portfolio that investors should know about?

Duet’s portfolio includes infrastructure assets such as the Dampier Bunbury Pipeline, United Energy Distribution, and Multinet Gas — assets typical of listed infrastructure funds that drive stable cash flows.

Is internalisation a wider trend among listed infrastructure funds?

Yes. The article notes a wider shift away from externally managed funds because many charged high fees and had interests not fully aligned with investors. Other funds, including those run by Macquarie and AMP, have previously internalised management, and several listed infrastructure boards have been discussing similar moves.

What recent takeover activity involves Hastings and what was the Takeovers Panel decision?

Hastings and Hastings Diversified Utilities Fund have been the focus of competing bids from Pipeline Partners and APT Pipelines. The Takeovers Panel recently declined to conduct proceedings on an AFIC application that sought a full independent evaluation of Hastings’ proposed internalisation in the context of the Pipeline Partners takeover bid.