Transurban's takeover toll

The position Transurban finds itself in is most unsatisfactory and makes a case for some regulatory reform.

Four and a half months ago, in early November, Transurban revealed it had rejected a proposal from its two biggest shareholders, Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan, which involved a scheme of arrangement that valued Transurban at $5.25 per security.

A month later, out of the blue, the Future Fund volunteered to the market that it was considering joining the two Canadian funds, which own about 14 per cent each of Transurban, in bidding for the toll-roads group. There was no obvious requirement for the Future Fund to make that disclosure, which was interpreted as an attempt to impose some pressure on Transurban.

Today the Future Fund announced, without any elaboration, that it had terminated discussions with the funds. Transurban followed that announcement with one of its own, revealing that there had been further discussions between it and the two Canadian funds last week.

"To date no further proposal has been received," it said.

The Future Fund's statement could be read as either a sign that the Canadians, having presumably gained some understanding from their discussions with Transurban of the price required to gain its support, have given up, or an indication that the price was simply too steep for the Future Fund to contemplate.

If Transurban believed $5.25 per security significantly undervalued their group in November, then nearly five months later, in more settled markets and external conditions and a number of the group's growth projects closer to completion, the cost of an endorsement would have risen further.

The reality is that we don't know – and it appears Transurban doesn't know – whether the Canadians have abandoned their ambition or are still stalking the group.

For Transurban, and the market, that is a significant issue. Chief executive Chris Lynch has made it clear that there are a number of growth options available to the group, including upgrades to some of its NSW toll-roads, new projects in the US and the potential acquisition of Sydney's Lane Cove tunnel.

He might be able to do some of those things within his existing balance sheet capacity but if Transurban is to take advantage of its own relative stability and the distress within the sector it may need to raise equity.

If the Canadians are still lurking and waiting for an opportunity to have another crack at the group a capital raising would play into their hands – shareholders generally prefer to receive premiums rather than writing cheques to take up equity at a discount.

The fact that the Canadians own about 28 per cent of his capital could also complicate any equity raising, although now that the Future Fund – for which an exposure to Transurban would be a very good fit – has cut itself loose of the Canadian funds, it might be possible for it to play a role in supporting an issue or even taking out one or both of the Canadians.

The larger issue is that lack of understanding as to whether the Canadians still harbour a desire to acquire Transurban or not, which will colour the market for Transurban's securities and influence/distort its decision-making until it is ultimately resolved.

If, indeed, it is resolved. There is no obligation for the Canadians to explain their intentions and they could keep Transurban in a state of uncertainty and limbo for many more months, if not years.

In the UK the Takeovers Panel has a 'put-up or shut-up' rule under which it can, at the request of the target, impose deadlines on a prospective bidders to either make an offer or walk away for a period of at least six months. That rule was invoked by Rio Tinto after the initial merger approach from BHP Billiton.

That rule at least gives the market a timetable to work with and means that a company can't be stalked indefinitely, unsettling its people and forcing it to put its normal decision-making on hold indefinitely. Perhaps we need a similar rule for this market.