Bidding war for AusNet begins

Canadian real-assets and infrastructure giant Brookfield Asset Management has launched an indicative, non-binding and conditional proposal to take over Australian energy infrastructure business AusNet Services (ASX:AST). Brookfield’s infrastructure affiliate is looking to acquire the company by way of scheme of arrangement, acquiring all of the issued shares in AusNet at an indicative price of $2.50 cash per share.

Subsequent to this article, APA Group (ASX:APA), the pipeline owner has swooped-in with its own $2.60 bid for the business.

The indicative offer price of $2.501 cash per share represents a premium of:

• 26% to AusNet’s closing price on 17 September 2021 of $1.98
• 28% to the 30-day volume-weighted average price (VWAP) of AusNet shares prior to 17 September 2021, of $1.95
• 35% to the 90-day VWAP of AusNet shares prior to 17 September 2021, of $1.85

The bidding war is the latest in a series of high-profile takeover offers for major infrastructure assets. Sovereign wealth and pension funds around the world are flush with cash, and seemingly running out of private assets to buy, so are once again turning to listed companies.

Among the long-term backers of AusNet is Sydney-based fundie Investors Mutual (IML), which has spoken about it regularly at roadshows and on webinars. If sealed, it’s a big win for the IML team, which has not only been on-the-money but had significantly increased the weighting to the stock across all portfolios prior to the announcement.

IML says, “AusNet is a typical IML holding, as it is a quality company that owns assets with a huge competitive advantage (see below) which has delivered a recurring and predictable earnings stream which has grown steadily over time.”

AusNet’s portfolio of critical monopoly energy infrastructure assets in Victoria is what attracted IML’s portfolio managers. They include:

• AusNet Distribution (44% of asset base) – a large electricity distribution network covering eastern Victoria
• AusNet Gas Distribution (15% of asset base) – a large gas distribution network covering western Victoria
• Transmission (33% of asset base) – AusNet is the owner and operator of Victoria’s electricity transmission network
• Mondo (8% of asset base) – a rapidly growing owner and operator of unregulated infrastructure assets, enabling the connection of renewable power into the electricity grid.

“AusNet looked extremely attractive to us due to the assets above and the very positive growth outlook for many of these assets through legislative changes. In addition, AusNet has consistently paid a dividend yield of 5%-6% with franking, further enhancing returns and reducing downside risk,” says IML.

In similar fashion, IML wouldn’t be surprised if similar takeover approaches filter through to a number of companies in its portfolios over the coming months and years. These companies have the same characteristics and provide a great opportunity for IML investors to benefit from exiting a shareholding at a premium to the prevailing share price.

Concluding, IML says: “Alternatively, many companies that we own and which have been expanding overseas are likely to take advantage of the current low-interest rates to make accretive add-on acquisitions, which should help strengthen their operations by increasing their scale and competitive advantage, and should enable these companies to accelerate their long-term earnings growth going forward.”

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.