CDPQ Joins STP Consortium to Acquire Australia's WestConnex

Fraser Tennant of Financier Worldwide reports that a consortium as bought Australia's WestConnex toll road A$11.1 billion:

In an AU$11.1bn transaction that gives it full control of one of the largest road infrastructure projects in the world, a consortium led by Australian road operator Transurban is to acquire 49 percent of the WestConnex toll road in Sydney.

The consortium, Sydney Transport Partners (STP), already owns 51 percent of WestConnex – an approximately 70km-system of toll roads – after it purchased the stake from the New South Wales (NSW) government in 2018 and emerged as the top bidder for the remainder.

In addition to Transurban, which owns 50 percent, STP, AustralianSuper and Tawreed Investments are also partners in the consortium. Following the acquisition of the remaining 49 percent stake of WestConnex, AustralianSuper and Tawreed Investments will maintain their holding in STP, while the consortium will add Canada’s Caisse de dépôt et placement du Québec (CDPQ) as a new partner.

“WestConnex is one of the largest road infrastructure projects in the world and a key component of NSW’s integrated transport plan to ease congestion and connect communities in Sydney,” said Scott Charlton, chief executive of Transurban. “We feel privileged to take STP’s holding in this critical asset to 100 percent.”

Under the terms of the acquisition, CDPQ will contribute 20.5 percent of the acquisition cost for the remaining 49 percent stake in WestConnex for a 10 percent stake in STP. Canada Pension Plan Investment Board's interest in the STP consortium will be 10.5 percent.

Upon completion of the transaction, the NSW government will have received a total of AU$20.4bn from the sale of the entire WestConnex project.

To fund the acquisition, Transurban will raise AU$4.22bn of new equity. Overall, the acquisition will be fully funded by STP with equity upfront and no additional debt funding. The increased WestConnex ownership is currently expected to facilitate more than AU$600m of additional potential capital releases until 2025.

Dominic Perrottet, NSW treasurer, concluded: “This transaction continues our successful asset recycling strategy, which has been the cornerstone of our record A$108.5 billion infrastructure pipeline that has built and upgraded schools, hospitals, road and rail across NSW.”

Byron Kaye of Reuters also reports Transurban consortium to pay $8.1 billion for full control of Sydney tunnel network:

A consortium led by Australia’s Transurban Group will pay A$11.1 billion ($8.06 billion) for a near half stake of the country’s longest auto tunnel network, giving it full ownership of the asset and dominance of Sydney’s toll road network.

Transurban already owned 51% of WestConnex, a roughly 70 kilometre (44 mile) system of toll roads linking Sydney’s sprawling metro area, along with Canada Pension Plan Investment Board, Abu Dhabi Investment Authority and domestic pension fund AustralianSuper. The New South Wales state government owned the remaining share.

Buying out the 49% share from the state gives the group - of which Transurban owns a half share - the full financial benefit as more sections of the giant capital works project open to traffic in the next few years. The consortium added Canada’s Caisse de dépôt et placement du Québec as a member, Transurban added.

“WestConnex is one of the largest road infrastructure projects in the world (and) a key component of the New South Wales government’s integrated transport plan to ease congestion and connect communities in Sydney,” said Transurban CEO Scott Charlton in a statement.

“We feel privileged to take Sydney Transport Partners’ holding in this critical asset to 100%,” he added, using the name of the consortium.

Transurban said it would raise A$4.22 billion in a stock issue to fund its part of the purchase, which already had the necessary regulatory approval. The company owns most Sydney toll roads and dominates Australia’s toll road market from coast to coast.

Australia has been experiencing a spike in mergers and acquisitions activity over the past year as lockdowns put downward pressure on asset valuations while rock-bottom interest rates make it cheaper for investors to raise capital.

Also on Monday, power grid owner AusNet Services Ltd said it would open its books to Canadian investment giant Brookfield Asset Management after it made a A$9.6 billion indicative offer.

CDPQ put out a press release on this deal:

Caisse de dépôt et placement du Québec (CDPQ), a global investment group, announced today a AU$2.3 B investment in WestConnex, Australia’s largest road infrastructure project, and that it is joining the Sydney Transport Partners (STP) consortium led by Transurban. 

STP has executed an agreement to acquire the remaining 49% equity stake in WestConnex from the NSW Government for AU$11.1 B. This important transaction will take STP’s total ownership interest in WestConnex to 100%, with CDPQ owning a 10% stake of this strategic road asset. 

WestConnex is Australia’s largest road infrastructure project and is a major part of the New South Wales (NSW) Government’s integrated transport plan to support Sydney’s growth. By 2031, 40% of Sydney’s population is expected to live within 5 kilometres of WestConnex. It includes 33 km of new or improved motorway and 37 km of existing road assets. WestConnex also includes connections for future projects linking the north shore and northern beaches, Sydney Airport, Port Botany and the southern suburbs. With a significant network of new tunnels, WestConnex is providing traffic with an underground alternative allowing surface roads to be returned to communities and creating a positive legacy by delivering 18 hectares of new parks, playgrounds and recreational facilities. 

Emmanuel Jaclot, CDPQ’s Executive Vice-President and Head of Infrastructure, said, “WestConnex plays a critical role for Sydney residents, offering faster, safer and more efficient routes around Sydney. As a longstanding infrastructure investor in Australia, CDPQ is thrilled to join forces with Transurban and Sydney Transport Partners in acquiring a stake in WestConnex, an investment which aligns with our strategy targeting high-quality infrastructure alongside partners with extensive market knowledge and operational expertise.”

CDPQ is a significant investor in Australia and New Zealand. CDPQ has been active in infrastructure, logistics, real estate and private equity, with recent investments including Healthscope, a private hospital operator, and Sydney Metro. CDPQ is also a shareholder and long-term partner of Plenary Group, having invested in several Plenary-originated Australian PPP projects since 2012. It also holds a 22.5% interest in TransGrid, the electricity transmission network of the State of NSW and the Australian Capital Territory, and 26.7% in Port of Brisbane.

Further information in relation to the WestConnex acquisition and the Entitlement Offer are set out in the investor presentation released by Transurban to the ASX today. Financial close of the acquisition is expected in October 2021. 

This is another fantastic deal for CDPQ buying a stake in WestConnex, one of the largest road infrastructure projects in the world (and) a key component of the New South Wales government’s integrated transport plan to ease congestion and connect communities in Sydney.

By joining this consortium, CDPQ, Canada's second-largest pension fund,  also joins CPPIB, Canada's largest pension fund which already owns a 10.5% stake in this project. 

In other words, once complete, Canada's two largest pension funds will own a 20.5% stake in the most important road infrastructure project in Australia and one of the largest road infrastructure projects in the world.

Australia's Transurban will remain the majority owner of this project and operator. It put out this press release on the WestConnex acquisition:

Transurban, as part of the Sydney Transport Partners consortium, has successfully been awarded 100% ownership of WestConnex, Australia’s largest road infrastructure project.

Transurban has managed WestConnex since 2018, which has included opening the New M4 Tunnels and the M8 and operating these new assets alongside the responsibility for the M5 East tunnel. Together this network continues to transform previously congested corridors across Sydney.

One in five Australians call Sydney home, and 40% of the Sydney population is expected to live within 5km of WestConnex in 2031. WestConnex draws vehicles from across the city by providing a critical connection between Sydney’s west and south-west and the CBD, as well as a corridor to the airport and port.

With close to 250 million trips taken across WestConnex last financial year, drivers are enjoying significantly improved travel times, journey reliability, safety and connectivity.

Construction of the remainder of WestConnex has largely been completed, and our work is continuing on the M4-M5 Link Tunnels as well as the Rozelle Interchange (being delivered by Transport for NSW).

“WestConnex is one of the largest road infrastructure projects in the world with an enterprise value of $33 billion based on this transaction,” says Transurban CEO Scott Charlton.

“WestConnex is a key component of the NSW Government’s integrated transport plan to ease congestion and connect communities in Sydney.”

For those unfamiliar with Transurban, here is more about this company:

As one of the world’s largest toll-road operators, everything we do works to get people where they want to go, as quickly and safely as possible – from designing and building new roads to researching new vehicle and road safety technology.

We’re an Australian-owned company and we build and operate toll roads in Melbourne, Sydney and Brisbane, as well as in Greater Washington, United States and Montreal, Canada.

We design our roads for the long term, ensuring they’ll deliver real and lasting benefits to cities and their communities. While you’re thinking about getting home on time today, we’re also thinking about how you’ll get home 10 or 20 years from now.

We’re also a technology company – we research and develop innovative tolling and transport technology that makes travel easier for everyone.

As an industry leader, we set high standards for our performance on social and environmental issues, and we invest in both to create social inclusion and manage our environmental impacts. We’re also a member of our local communities. We build parks and bike paths, create new community facilities, and plant trees for wildlife habitats – helping people connect with each other and their neighbourhoods.

When you're partnering up with an experienced partner like this to invest in a major toll road project in Australia, you're partnering up with a world-class operator that knows how to deliver value over the long run.

That's why I can confidently state this stake in WestConnex will be a great long-term investment for CPPIB, CDPQ and all the members of the STP consortium.

Interestingly, back in 2016, the WestConnex project was widely criticized in Australia as being too expensive and some were calling for a suspension of work.

I'd say the New South Wales (NSW) government made a great return on this sale and they know how to manage their growth and infrastructure projects in Australia.

The world is getting ever more populated, smart urban planning requires smart long-term infrastructure projects and I'm glad CDPQ and CPPIB own a stake in this major project.

In other related news, CDPQ announced that it will acquire a significant stake in ICR, a global leader in strategic communications and advisory services:

Caisse de dépôt et placement du Québec (CDPQ), a global investment group, today announced that it will acquire a significant stake in ICR, a global leader in strategic communications and advisory services. CDPQ will join with existing shareholders Investcorp, a leading global provider and manager of alternative investment products, and ICR team members, in order to continue the Company’s growth and expansion.

Founded in 1998 by a team of former Wall Street analysts, including Thomas M. Ryan, ICR’s Chief Executive Officer, the Company has been one of the fastest growing agencies in the world over the past 20 years, establishing itself as a leading advisor to companies in need of communications and advisory support. Based on its unique industry focused model, ICR provides fully-integrated services across investor relations, public relations, transaction advisory, governance/ESG and digital branding. 

“ICR has created a remarkable value proposition for companies and their leadership teams thanks to its unique portfolio of services, high quality network and the distinctive profile of its client facing teams who possess deep industry and capital markets knowledge. This provides ICR a unique advantage to align strategic communications and transaction advisory among all stakeholders,” said Martin Laguerre, Executive Vice-President and Head of Private Equity and Capital Solutions at CDPQ. “CDPQ is excited to join forces with Investcorp and ICR’s team to further propel the Company’s growth.” 

“ICR is a proven market-leader, well known for its differentiated coupling of capital markets and communications professionals to help effectively deliver on its clients’ goals of building and protecting their equity and brand value,” said David Tayeh, Head of Private Equity – North America at Investcorp. “We look forward to our continued partnership with ICR – and working alongside CDPQ – as we further expand the business to meet the growing needs of current and prospective clients.” 

Investcorp invested in ICR in 2018 to focus on accelerating the Company’s organic growth, identifying complementary acquisitions and expanding the business globally.   

Tom Ryan and Don Duffy, CEO and President of ICR, respectively, stated, “We are pleased to partner with CDPQ and their team while leveraging our existing relationship with Investcorp. These two formidable investor groups, which between them have helped hundreds of businesses grow and create value on a global scale, will position our incredible team members for long-term success while further cementing ICR as the agency of choice for private and publicly traded companies around the world.”

Jefferies LLC served as lead financial advisor, while William Blair also served as financial advisor for Investcorp and ICR. White & Case acted as company counsel. Credit Suisse served as financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP as legal counsel for CDPQ. 

The transaction remains subject to customary regulatory approvals.

This is an excellent co-investment and even though details are not available, CDPQ will join with existing shareholders Investcorp and ICR team members to continue the company’s growth and expansion (my best guess is CDPQ will own a 50% stake once the deal is complete).

I read this about ICR which I bring to your attention:

Founded in 1998 by a team of former Wall Street analysts, ICR has since grown to be a one-of-a-kind firm that’s integrated vertically by sector and horizontally across every communications discipline.

At ICR, you’ll see Wall Street professionals and sell-side analysts working shoulder-to-shoulder with global agency veterans and corporate communications leaders. Former journalists and political consultants collaborating with award-winning creative teams and social media specialists.

The result is a firm that understands the power of perception, the role it plays in determining a company’s value and – most importantly – how to shape it.

It sounds like this firm is a leader in strategic communications and that will prove useful to CDPQ in many ways.

Anyway, I wanted to bring both these deals to your attention as I think they are significant and definitely worth covering.

Below, Sky News Australia reports the New South Wales government has sold its remaining stake in Sydney's WestConnex motorway for A$11 billion.

Second, 7News Australia reports on how Transurban consortium has tightened its grip on toll roads by paying A$11 billion to secure total control of WestConnex. "It's a virtual monopoly that's hitting the hip pockets of most Sydney drivers especially those in our west and southwest."

Also from 7News, a major milestone for Australia's largest road infrastructure project occurred in April with a tunnel breakthrough for the final stage of WestConnex. The tunnel links the M4 to the airport and M5. It's set to save travel time but with new tolls.