Spark Infrastructure Group invests in utility infrastructure assets in Australia.
SKI is the big name of last week that revealed that it had received a non-binding takeover offer. The offer has come from a consortium made up of major private equity firm KKR in partnership with pension fund (and long-time investor in Australian infrastructure assets) Ontario Teachers’ Pension Plan (OTPP). The offer is for $2.80 per unit which, at this stage, the board has considered insufficient to support but enough to allow limited due diligence to nudge the consortium into raising the offer further.
SKI is an interesting entity as it was set up to hold minority interests in electricity distribution assets in South Australia and Victoria, and for most of its assets (from a portfolio value perspective) it simply receives dividend cheques with Hong Kong-based giant Cheung Kong Infrastructure (CKI) operating the assets. While its asset base is undoubtedly high quality, it is questionable whether a new owner such as KKR could extract any more value from the assets given the lack of controlling stake, so it seems unlikely a bidding war could emerge. Ultimately, the price KKR and OTPP will be prepared to pay will have a lot to do with its view of long-term interest rates and the $2.80 offer looks full compared to similar transactions and SKI should trade at a discount because of its minority holdings in its assets.
Given our view we don’t expect to see a bidding war, an attractive arbitrage entry is our best bet, but we need to see the SKI board sign a scheme implementation agreement with the consortium before we would consider buying the stock. For the moment, SKI will remain on the watchlist.
