Australian pension giant braves steep M&A curve

(Reuters) – AustralianSuper is diving right into the deep end of the merger pool. For its first solo acquisition attempt, the country’s biggest pension fund has attempted an unsolicited $3.8 billion takeover bid for New Zealand-based infrastructure investor Infratil. It picked a target with a solid negotiating position and Goldman Sachs on defence, and its first pass was swatted away. For this to be more than just a learning experience, it will have to dig deeper into its pockets.

Infratil would fit nicely within AustralianSuper. With some $140 billion under management, it is one of the world’s biggest investors in ports, motorways and other connective systems. The Kiwi company owns a chunky collection of assets that includes renewable energy operations, utilities, Wellington Airport, the domestic Vodafone business and more.

Infratil was not swayed, however, by Australian blandishments, which were not previously disclosed. It publicly rejected them on Wednesday, saying the latest sweetened bid was still too low, adding it had no plans to engage further with AustralianSuper. It is hardly surprising. The 22% premium on offer, paid mostly in cash plus some shares in a utility that Infratil controls, failed to stack up. Over the last five years Infratil has delivered shareholders a robust 20% annualised total return, including reinvested dividends.

What’s more, Infratil owns majority stakes in many of the companies in which it invests. It could reasonably demand additional financial consideration for delivering all that control. Earlier this week, it kicked off a strategic review for $1.3 billion wind farm operator Tilt Renewables, which may attract a healthy purchase price of its own. And Infratil investors might want to share in the hefty savings AustralianSuper could extract by eliminating fees Infratil pays asset manager Morrison & Co and doing the job itself. Those probably run to nearly $40 million a year, according to Jarden analysts.

To stay in this hunt, the breadth of considerations will test the ambition and discipline of a novice buyer such as AustralianSuper. It only has embarked on two previous acquisitions, both with partners, one of which succeeded. There undoubtedly will be more takeover attempts to come. If nothing else, angling for Infratil should help the pension fund climb a steep M&A learning curve.