Australian Infrastructure: Gonski
Australian Infrastructure Fund securityholders have received a pleasant surprise; the Future Fund has made a ‘conditional and non-binding’ offer of $2.0bn for the group’s operating assets. The offer equates to $3.22 per security, which Australian Infrastructure intends to distribute to securityholders if the deal proceeds.
Securityholders will also receive any remaining cash left on the group’s books. Australian Infrastructure currently has $157m of cash in the bank thanks to the recent sales of non-airport assets. There will be a slew of costs involved with the deal, including outstanding management fees owed to Hastings Group, but we estimate the leftover cash could be worth around 8 cents per security.
While it’s not a done deal, we expect securityholders to approve the transaction later this year assuming the Future Fund finds no skeletons in the closet. There are a number of caveats that could squash the deal, such as the Aussie dollar falling below US$0.85, but given the performance of the group’s airports we expect the deal to proceed. Securityholders will start receiving payments next year.
We’ll skip a full analysis of the company’s results for the moment, as it’s a moot point in light of the proposed transaction. So what should you do now?
At the current price, the difference between selling out now on market and holding on for around $3.30 per security in six months is only around 5%. Selling now guarantees an attractive exit price. But we acknowledge that this leaves a small amount of value on the table, and forgoes the opportunity of a higher bid. That said, this deal—at a premium to net tangible assets—is better than we hoped for and we’re cognisant that several deals have fallen over in recent times.
Importantly, if the deal falls through then the security price would likely fall 20%-30%. Australian Infrastructure is also going to continue with its internalisation proposal in the interim. For members who decide to hang on we’ll continue to provide ongoing coverage of the stock, but with the security price having risen 22% since 31 Jul 12 (Hold – $2.59) and providing total returns of 164% since Diversity an asset at Australian Infrastructure Fund from 01 Jul 09 (Buy for Yield – $1.31), we’re taking the opportunity to sell on market and switching to SELL.