Shares of infrastructure giant, Transurban Group (ASX: TCL), are stuck in a trading halt today following the company's announcement that it'll buy Brisbane's AirportlinkM7 for just shy of $2 billion, including costs. The asset will be held as part of Transurban Queensland, which is 62.5% owned by the Transurban Group.
Transurban already owns six assets in Queensland, including three assets adjacent to the AirportlinkM7 tunnel. Constructed in 2012, the tunnel connects Brisbane's airport to the CBD.
The 6.7 kilometre tunnel achieved an average daily usage of 50,854 vehicles in the 2015 financial year (FY15), but that figure has risen to 55,554 in FY16, so far. The company said it would pay 51% of the original build cost.
"The asset is performing well," Transurban CEO, Scott Charlton said. "AirportlinkM7 is a quality urban asset with observed traffic history and substantial additional capacity."
"We expect to achieve EBITDA margin enhancement through integration with Transurban following this acquisition," he added.
To fund the acquisition, Transurban plans to undertake a fully underwritten pro-rata accelerated renounceable entitlement offer. Specifically, investors will be given the chance to buy 1 new share for every 18 they already own, at the offer price of $9.60.
Credit to Transurban for making the offer 'renounceable'. Put simply, that means, should investors not wish to buy new shares, that 'right' can be traded away or sold and bought by someone who wants to buy Transurban shares for $9.60. The offer is expected to raise $1,025 million.
According to a company presentation, the acquisition will take place at an operating profit multiple of 28x. It's Transurban's most expensive purchase since 2010, when it bought Lane Cove Tunnel at 28.5x profit. However, gearing will fall from 40.2% to 39.3%, according to the company.
Profit update
In its ASX announcement this morning, the company also announced first-half distribution guidance of 22.5 cents and reaffirmed FY16 distribution guidance of 44.5 cents. New shares will not be entitled to the first-half distribution.
Foolish takeaway
Transurban has a lengthy track record of taking on big infrastructure assets, with existing assets in Melbourne, Sydney, Queensland and in Virginia, USA. Personally, I have reservations about investing in Transurban shares because I believe it is outside my circle of competence. However, based on what I do know, I think it appears a little pricey at today's levels.
