The billion dollar letter that Infratil thought might be a joke

Australian Super’s aborted approach for Infratil was enough to unlock a billion dollars of value the market failed to see. But the target company wondered whether it was serious from the start.

In December 2020, shares in Infratil immediately leapt around 20 per cent, from what was already a record high, adding close to $1 billion to its market capitalisation. Closing a long-standing gap between Infratil’s net asset value and its share price, Infratil’s share price remains above the offer price, even after a sharp fall in January.

For an infrastructure fund, which has been the cornerstone for Wellington investment firm Morrison & Co since it was listed on the NZX in 1994, the possibility of a contested takeover created headlines but never materialised.

In an interview before standing down as chief executive of Morrison & Co at the end of December, Infratil’s manager, Marko Bogoievski questioned whether Australian Super’s approach was serious.

Australian Super had not bought any shares in Infratil or hired a local investment bank to advise it, then publicised its frustrations before the deal was public.

“Without going into too much detail, part of the assessment we did that says ‘is this real?’, [was the] lack of local advisors, [that they] haven’t bought any position in the stock, the fact that they leaked their offer, right when we’re in the middle of a discussion. None of that says this is a real offer, to me,” Bogoievski said.

“They put out a highly conditional proposal, which actually, in its detail, showed they hadn’t thought about some key issues, whether it was, sort of, OIO [Overseas Investment Office] risk or what that asset does in our portfolio.

“So they effectively spelled out their assumptions in a way that showed quite a bit of doubt, I guess, about the amount of work they had done.”

Australian Super issued a statement shortly after news of the deal broke that it was attracted to Infratil’s mix of assets, and it wanted to conduct due diligence for an indicative, non-binding offer.

Locally, Infratil owns a majority stake in Wellington Airport and TrustPower, and about half of Vodafone New Zealand.

But Oz Super, as it is widely known, was believed to be more interested in owning Canberra Data Centres (CDC), which has ballooned in value since Infratil jointly bought it from private equity in 2016, and Tilt Renewables, the transtasman wind farm developer that was spun out of TrustPower.

Infratil immediately dismissed the idea of allowing Australian Super access to internal information.

“You don’t give exclusive due diligence and access and information to anyone who writes you a letter and puts a number on it, even if they’re a gorilla,” Bogoievski said.

Morrison & Co was aware of several offers for assets Australian Super had in the market at the time for infrastructure assets, Bogoievski said.

“These guys are firing off letters every day. It’s sort of like their model, looking for something to stick,” Bogoievski said.

“All that’s relevant. So I didn’t think it was the world’s best-executed offer, and that’s the way we assessed it.”

While takeover approaches would usually detail assumptions about the business “so you have confidence that if you allow them access to do due diligence, they’ve got a reasonable basis upon which to test their assumptions”, Bogoievski said.

The Oz Super approach was “really skinny” in terms of its assumptions about different parts of the business.

“We weren’t even sure that they were making heroic assumptions or moderate assumptions, and they kept indicating they had no appetite to move further. So it was sort of a self-destructing offer, so why would any entity tie up resources giving someone access when that’s the starting point?”

Nevertheless, he was “surprised they leaked it because it felt like the process still had a couple of turns left in it”.

Shortly before the Australian Super offer became public Infratil announced it was conducting a strategic review of its stake in Tilt Renewables.

Bogoievski said as part of its response to the offer, Infratil had invited Australian Super to buy parts of the business.

“We said, ‘if you’re interested in specific parts of our portfolio, Infratil is occasionally in the business, it occasionally sells stuff, even stuff that we’ve had for a long time. Go for your life. Go make a proposal for Tilt.'”

Ultimately Tilt sold for around $3b, more than double what the market valued it at before the strategic review began. According to media reports from Australia, Australian Super was not one of the final bidders.

Australian Super did not respond to requests for comment on the fund’s approach for Infratil. Two people engaged by Australian Super to provide assistance, public relations specialist Hugo Shanahan and political lobbyist Mark Unsworth, both declined to comment.

The Herald can reveal that Australian Super retained the government’s preferred public sector fix-it appointee, Sir Brian Roche, the former chief executive of New Zealand Post, as an advisor for the Infratil bid.

The exact nature of his role is unclear, but it appears to have been advising on political considerations. Roche did not respond to a request for comment on his role.

One person involved in the deal called Bogoievski’s comments “convenient” and made with the passage of time.

The fact that Australian Super was bidding for other assets meant nothing, given its scale.

“These guys are huge, they’re ten times the size of anything in New Zealand. They could run three or four of these [offers] at the same time,” the person said.

“They came up against someone who didn’t want to sell, but to say it was all a bit mickey-mouse is just bulls***, really.”

Bogoievski denied Infratil was not considering offers, but that the offer did not have a reasonable starting point.

“If you turn up today with a credible offer, that’s significantly higher [than the market price], you will get engagement. There’s no doubt that any buyer that turns up with the right starting point, will get engagement. We didn’t think it was the right starting point.”

Most of Infratil’s large shareholders backed the decision to reject the deal, ACC, which has long challenged Infratil and its manager over its fee structure, immediately applied pressure for the board to allow access.

“This is an indicative bid from a credible and well-funded bidder, at a solid premium to the pre-offer share price and analyst valuations,” Blair Cooper, head of equities for ACC’s said.

“This meets the threshold to warrant Infratil constructively engaging to allow Australian Super to put forward its best offer”.

At the time of the offer Bogoievski made pointed comments to RNZ that for fund managers that were not meeting their annual benchmarks it was “really tempting to take a short term view”.

Most shareholders came out in support of Infratil’s position, Bogoievski said.

“We had, basically one shareholder, that was p***ed off. I’m sure there were a few others but one really significant one that was upset. [Who] thought we should have run a different process. I thought it was interesting that just about all the other large-ish holders thought it was fine.”

Bogoievski did not believe Morrison & Co’s influence was enough to make New Zealand’s capital markets – where generally disputes are not aired publicly – reluctant to criticise the company.

“They couldn’t give a s*** about that. I don’t think we have that clout around here. At all,” Bogoievski said.

“Half of Auckland would be unafraid to be critical at the right time, of Morrison & Co and Infratil or whatever. We get that. And the place is so small that you hear about it anyway, right?”

Source: Read Full Article