The head of one of New Zealand's wealth managers has backed Infratil's refusal to open its books to AustralianSuper, calling the pension provider's current takeover bid "insufficient".
Last week AustralianSuper publicly revealed that it had made two approaches for Infratil, an infrastructure fund with assets ranging from clean energy to airports, the second valuing Infratil at around $5.4 billion. The offer sent Infratil's shares surging above $7.
Infratil immediately hit back that the offer was not adequate and they did not expect further engagement at the current bid level.
But the board of the Wellington-based fund has come under pressure from some fund managers to discuss the bid with AustralianSuper further.
As the offer became public, state-owned fund manager ACC said the premium to Infratil's recent share price made it worthwhile for Infratil's board to engage with the Australians over the bid.
Other shareholders have said while the price offer may not be enough to reach a deal, Infratil should be open to talks.
Neil Paviour-Smith, the managing director of Forsyth Barr, said it was clear that there had been a level of engagement between Infratil and AustralianSuper, but what the Australians wanted was for Infratil to open its books to allow due diligence.
"I think at this stage the offer is insufficient," Paviour-Smith said.
"It's good, in a way, that Aussie Super have highlighted the underlying value ... The shareholders have benefited from the circumstances the company's in, but the current price [being offered] is just too low."
This morning analysts at Forsyth Barr released a note raising its target price on Infratil to $7.70, above AustralianSuper's offer price. The note outlined what its analysts saw as a range of likely scenarios which they said could result in Infratil's shares being worth between $6.25 and $10.
Infratil had invested in communicating with its large base of retail investors, making it a popular holding among its clients, Paviour-Smith said.
"The number one thing they do well is they deliver outstanding investment returns, which they've done over a long period of time. What your shareholders are ultimately looking for is a really good investment and Infratil has delivered that."
At the end of June, Infratil had delivered 19.1 per cent compounding annual return over a decade, Paviour-Smith said.
"That puts the company up amongst other high performers like Ryman [Healthcare], Ebos, Mainfreight, Port of Tauranga over that timeframe. You're talking about a company that's in the top half dozen or so of our leading companies over the last decade, in terms of delivering shareholders returns.
"I think investors like the underlying asset exposure of high-quality assets. I think they back the board and management in terms of their ability to sustain the performance and they like the fact that the returns have been consistently good along that timeframe."
Forsyth Barr's services cover more than $20 billion of assets for its clients, with 22 offices across New Zealand. The exact holding of Infratil shares among its clients was unclear but Paviour-Smith said the holding was significant.
"Infratil is one of our larger holdings amongst our client portfolios. It has been for a long time. We like the fact that it provides that diversified underlying exposure and, obviously, the return on top," he said.
"I think investors will be mindful that if you were going to accept an offer that isn't perhaps capturing some of that potential for continued outperformance, then it's going to be difficult for Aussie Super at that current pricing."
Management fees 'may evolve'
Morrison & Co, the investment bank founded by the late Lloyd Morrison which has run Infratil from the start, has a management contract which attracts significant annual fees. ACC publicly clashed with the company over the fees at its AGM earlier this year.
Paviour-Smith believed investors did not mind incentives for strong performance.
"When you consider that very good, outstanding long-term performance, investors don't mind rewarding management, and in this case, a contracted provider, with the incentives that are going to encourage and actually deliver excellent long-term performance."
Paviour Smith predicted the independent directors of Infratil would continue to monitor whether the fees were appropriate.
"Our expectation, and I'm sure it's the case, [is] that the board continues to keep the management contract arrangements under review and our expectation is that would evolve over time to reflect the contemporary circumstances, but I don't think this is a situation where you simply come along and say 'okay, just because there's been a takeover offer, we need to reduce the management fee'.
"Our preference would be Infratil and Morrison & Co can continue to deliver a great long term return."
Infratil chairman Mark Tume last week confirmed Infratil's 18 per cent return per annum was after tax and after all management fees.
"As it always has, the Infratil board will continue to consider all portfolio options and proposals that maximise shareholder value," Tume told the Herald.
A subcommittee of independent directors, excluding Morrison & Co's Marko Bogoievski, had been set up to assess AustralianSuper's offer, he added.