'Cintra - Ferrovial' plans to devour itself. Shareholders choke.
By Raji Menon and Sonya Dowsett
LONDON/MADRID - A possible merger between Spanish infrastructure group Ferrovial (FER.MC) and its sister company, toll road firm Cintra (CCIT.MC), would solely benefit Ferrovial, Cintra minority investors said on Wednesday.
Debt-laden Ferrovial, which already owns 67 percent of Cintra, said in December it was studying a possible merger with the company but that there were no agreements in place as yet. Cintra said in January it had agreed to study a possible tie-up.
Disgruntled shareholders representing 4.2 percent of the share capital of Cintra wrote to the board outlining their opposition to any merger with Ferrovial.
"The merger rationale is far from compelling from Cintra's point of view and it seems designed to address the immediate financial challenges of Ferrovial," said Peter Doherty, Managing Director of infrastructure investment mananger CP2 Limited.
Bill Clark, Director of the Division of Investment at the State of New Jersey, representing the New Jersey Pension Fund agreed.
"We are highly concerned with the proposed merger. It is very clear that all benefits from the merger flow to Ferrovial shareholders only," he said.
Ferrovial and Cintra declined to comment on the matter on Wednesday.
Under Spanish law, a parent company must own at least 75 percent of a subsidiary to incorporate it fully into its balance sheet. Cintra's losses would bring tax advantages to Ferrovial.
A merger could also give Ferrovial access to Cintra's high cash levels, about to be boosted by the toll-road firm's sale of car parks and Chilean toll road assets.
"Around 1 billion euros ($1.3 billion) in liquidity would be a welcome boost to Ferrovial's balance sheet," Citi analyst Mike Pinkney said at the time.
Ferrovial had debt of 24.1 billion euros at the end of December, dwarfing 2008 sales of 14.1 billion euros. It has put Gatwick airport up for sale and will use the proceeds to pay off debt as it moves to reduce leverage.
The group bought British operator BAA, owner of Gatwick and Heathrow, in 2006 in a deal worth over 10 billion pounds ($13.82 billion).
The four signatories on the letter to Cintra are Britain's Universities Superannuation Scheme (USS), Australia's CP2 Limited and Magellan Asset Management and New Jersey Pension Fund.
Together, the investors represent 13 percent of Cintra's share capital not owned by Ferrovial.
Cintra was 2.1 percent higher at 3.4 euros by 1430 GMT. Ferrovial was 1.4 percent
© 2009 Reuters: www.reuters.com
Ferrovial faces revolt over Cintra buy-out
ByMark Mulligan in Madrid
Ferrovial of Spain faces a shareholder revolt over plans to buy out minority investors in its separately-listed Cintra toll road group.
Institutions representing about 13 per cent of Cintra’s free float have clubbed together to oppose the move which, they claim, has “extremely limited rationale” for the company, with “all the benefits flowing to Ferrovial”.
Ferrovial, which controls UK airports operator BAA, admitted late last year it was considering the purchase of the 32 per cent of Cintra it does not already own. Six weeks ago, Cintra confirmed in a regulatory filing that its four independent board members were studying “a possible merger” with the parent, and that a fairness opinion on a share exchange had been sought. Analysts have suggested a possible exchange ratio of one Ferrovial share for every five of Cintra.
The motorway business was spun off in 2004, when Ferrovial was still largely a construction company. Analysts say Cintra has about €400m in cash and that it is set to raise an additional €600m through the sale of its Spanish car parks and Chilean toll roads.
Apart from giving it full access to this cash, the consolidation of Cintra could provide tax benefits to the heavily-indebted parent group. Ferrovial also argues that Cintra now fits well with the company, after the £16bn acquisition of BAA in 2006 transformed the group into an infrastructure management group.
The rebel Cintra shareholders disagree, saying they invested specifically in the company because it was a toll road manager. They want to be compensated for the “substantially greater risk profile of Ferrovial shares [compared with] Cintra shares”.
The shareholders — Universities Superannuation Scheme (USS) of the UK, together with the State of New Jersey, Australian infrastructure fund managers CP2 and Magellan Asset Management — say in a letter to Cintra’s board that the deal would give them “unwanted exposure to operations in new sectors and geographic regions”.
“Since its initial public offering, Cintra has represented a logical investment opportunity for specialist toll road investors,” they say in the letter. “However, the merger transaction that is currently being evaluated by the respective boards would fundamentally change the nature of our investment”.
Ferrovial has been under extreme financial and regulatory pressure since its purchase of BAA. After costly terrorist scares, it is now being forced to break up the business, at a time when acquisition financing is tight. Of five potential bidding consortia for its Gatwick airport in London, for example, two have already pulled out.
The company is also likely to be forced by regulators to sell Stansted airport, and either Edinburgh or Glasgow airport. All this has weighed heavily on its shares, which this week sunk to about a quarter of their historic peak.
Shares in Cintra this week also hit a new low of €3.08, compared with a peak of €14.3. A one-for-five swap with Ferrovial would have valued them on Monday at €3.3 each.
Ferrovial and Cintra have sought to head off shareholder action against the merger. Enrique Diaz Rato, chief executive of Cintra, said recently that any deal would not “go against the interest of minority shareholders”.
However, Warren Low, European fund manager for USS, said this week: “Frankly, I find it difficult to understand how the board will be in a position to recommend any offer, without a significant premium to the current market price.”
© 2009 The Financial Times: www.ft.com
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