By Mario Marroquin
Aussie infrastructure investor Atlas Arteria has made public its plans to purchase a majority equity stake in Illinois’ 7.8-mile Chicago Skyway public from the Ontario Municipal Employees Retirement System (which owns 33.3%) and the Canada Pension Plan Investment Board (also a 33.3% stakeholder). The announcement occurred one day after Atlas Arteria’s largest investor, IFM Investors, warned against the deal over potential dilution of distributions.
Total consideration for the transaction was US$2.01 billion and comes seven years after OMERS and CPP Investments announced plans to purchase stakes in Skyway Concession Company LLC, which manages, operates and maintains the toll road as part of a 99-year concession.
“The acquisition marks an important milestone in the execution of our strategy, extending the average concession life of our business and providing a strong platform for future growth,” Atlas Arteria CEO Graeme Bevans said in a statement. “[The Chicago Skyway] is a high-quality brownfield toll road situated in an essential transportation corridor, offering customers significant time savings and reliability versus alternate routes.
“Skyway’s attractive tolling mechanism will support earnings growth, and together with cashflows from the existing portfolio, is expected to provide for long-term sustainable distributions.”
While the deal is not expected to close until the fourth quarter, Atlas Arteria has also agreed that any change of control at Atlas Arteria would give the Ontario Teachers’ Pension Plan, the holder of the remaining one-third stake, the right to sell its stake in the road, according to AFR.
Atlas Arteria said the acquisition will establish a valuable partnership with the Ontario Teachers’ Pension Plan and noted the skyway’s tolling regime is expected to deliver 19% toll growth over the next two years.
The deal also extends Atlas Arteria’s weighted average concession life from 18 years to 37 years.
Concerns from the Board
IFM Investors disagreed with the deal. Kyle Mangini, the global head of infrastructure at IFM Investors, wrote in a letter dated Sept. 12, “If the Company continues with this course of action, IFM GIF will consider all legal options available to it, including seeking an accelerated Board transition by way of an [extraordinary general meeting], to protect its interests as a shareholder of the Company.
“We expect Atlas Arteria shareholders to strongly support IFM GIF in pursuit of these options, particularly in the context of the Company continuing to progress large equity funded offshore acquisitions such as Chicago Skyway, and the fact that the Company should be focused on funding and creating value from its existing asset portfolio.”
Atlas Arteria said it will finance the acquisition of the majority stake in the Chicago Skyway by way of a A$3.098 billion (US$2.08 billion) non-renounceable entitlement offer at a A$6.30 (US$4.22) per security – a 17.2% discount to distribution adjusted last close on September 12 of A$7.61 (US$5.10).
OMERS, CPP Investments and Ontario Teachers paid $2.8 billion for the acquisition of a 100% stake in Skyway Concession Company back in 2015. The trio also agreed to a $512 million equity investment in Skyway Concession Company when the sale was announced in 2015.
Despite their intended exit from the Chicago Skyway, the $518.8 billion AUM OMERS, and the US$395.2 billion CPP Investments remain venture partners in the IndInfravit Trust, which made a $1.2 billion equity investment in a portfolio of five roads owned by funds managed by Brookfield Asset Trust in July. IndInfravit acquired full equity stakes in three toll roads and two annuity roads with a residual concession period of 20 years, according to Financial Express.