Blackstone’s Italian bet can stay on the road

The logo of infrastructure group Atlantia is seen outside its headquarters in Rome, Italy, October 5, 2020. REUTERS/Guglielmo Mangiapane

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ROME, April 14 (Reuters Breakingviews) – The Benettons and Blackstone (BX.N) hit the road. Fearing a takeover bid from rival funds, the US private equity titan and highway tycoon led by Alessandro Benetton is offering 19 billion euros in cash, plus a dividend, to buy infrastructure group Atlantia (ATL.MI), which Benettons partly owns. At 58 billion euros debt included, the case looks steep. Even so, the inflation-protected returns and the proceeds from an asset sale explain the appeal.

A vehicle co-owned by the billionaires and Blackstone will offer 23 euros per share to investors in Atlanta plus a dividend of 0.74 euros. This is nearly 40% above the stock’s half-year average. It raises the bar significantly for U.S. funds Brookfield and Global Infrastructure Partners, which have also expressed interest after siding with Atlantia on-off partner and ACS (ACS.MC) chairman Florentino Pérez.

Adding net debt at the end of 2021 of nearly 39 billion euros, the offer values ​​the Milan-listed company at 58 billion euros, not counting around 9 billion euros in minorities and various other adjustments. That’s around 11 times the EBITDA of 5.1 billion euros that Atlantia is targeting for 2024, well above the 6.5 times of its French rival Vinci (SGEF.PA), which also has a business of construction. But this corresponds to the valuations of Aéroports de Paris (ADP.PA), according to Refinitiv estimates.

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Blackstone brings additional leverage to proceedings. It brings just over 4 billion euros of equity to its acquisition vehicle, in which the Benettons deposit their stake of 6.5 billion euros. Additional debt of €8 billion to fund the €19 billion of equity, plus dividends, would bring Atlantia’s overall leverage to over €47 billion.

Still, the deal looks better if you take into account the agreed sale of Atlantia’s Italian ASPI motorway unit. Atlantia will collect 8 billion euros and lose nearly 9 billion euros in debt. This lowers the value of the company to 50 billion euros, after taking into account minorities and other adjustments. Assuming Atlantia delivers an ASPI-free EBIT of €2.2 billion in 2024, after-tax returns would be just below the company’s estimated cost of capital by around 4%, according to Breakingviews calculations. But returns are expected to improve after 2025, when Atlanta’s airport business could fully recover from the pandemic.

Motorways and airports can provide effective protection against rising inflation. Infrastructure groups tend to hold regulated concessions tied to price increases. According to a Colonial First State Asset Management survey, more than 70% of assets held by infrastructure companies have the ability to pass on the impact of inflation to customers. This is valuable for pension funds and sovereign wealth funds investing in Blackstone products. And that means his Italian bet can pretty much work.

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(The author is a Reuters Breakingviews columnist. The views expressed are her own.)

BACKGROUND NEWS

– Italy’s Benetton family and U.S. private equity fund Blackstone will launch a takeover bid for Milan-listed infrastructure and mobility group Atlantia, according to documents filed April 14.

– Under the plan, an investment vehicle named BidCo would offer 23 euros per share in cash for each Atlantia share, giving it a net worth of 19 billion euros, plus a dividend of 0.74 euros per share. The offer represents a premium of almost 40% compared to the half-yearly average of the action once the dividend is included.

– The offer values ​​Atlantia at approximately 58 billion euros once Atlantia’s net debt of 38.6 billion euros at the end of 2021 included but before a planned sale of the ASPI motorway unit which will bring in 8.2 billion euros in cash and will reduce debt by 8.6 billion euros and before minorities.

– BidCo is 65% controlled by the Benetton family and 35% by Blackstone.

– BidCo will fund the deal with around 8 billion euros in debt, insiders told Breakingviews. The Benettons will entrust their 33% stake in Atlantia to BidCo and Blackstone will contribute more than 4 billion euros in equity.

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Editing by George Hay and Streisand Neto

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

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