CPP bids $11B for two firms

The Canada Pension Plan Investment Board moved to acquire an Australian toll operator and a U.S.-based health firm in two deals valued at more than $11 billion US on Thursday.

A consortium led by CPP Teachers' Pension Plan offered $6.6 billion US to take over Australia's biggest toll road operator Transurban Group Thursday. Though the bid valued Transurban at a 20 per cent premium above its most recent share price, the company rejected the bid, Bloomberg reported Thursday.

Transurban has replied that the offer was "incomplete" but noting it was willing to engage on "bona fide proposals," which suggests a deal could be possible with a sweetened bid.

Bid for health firm successful

But Canada's largest pension plan was successful in a separate bid for a U.S. health-care data firm on Thursday.

CPP teamed up with TPG Capital to buy out IMS Health in a transaction valued at $5.2 billion US, including debt.

IMS shareholders are getting $22 US per share under the deal, marking a 31 per cent premium to the stock's closing price of $16.81 on the New York Stock Exchange on Wednesday.

Pending shareholder and regulatory approval, the transaction is slated to close by the first quarter of 2010.

If approved, the transaction would be one of the larger leveraged buyouts of the year, and an encouraging sign that credit markets have turned a corner.

IMS Health operates in more than 100 countries and is the world's leading provider of market intelligence to the pharmaceutical and health-care industries. The company had 2008 revenues of $2.3 billion US.

Steve Foerster, professor of finance at the Richard Ivey School of Business at the University of Western Ontario in London, wasn't surprised by the CPP's moves. Given the size of its assets, he said, the pension fund's managers know they need to diversify beyond Canada, "so they're going to have to be searching the world for the best opportunities they can find."

The attempt to move into toll roads makes sense, he said, giving its managers "what they would call inflation-sensitive types of investments of which infrastructure is a portion of it."

Foerster expects CPP will increase its offer for Transurban and eventually reach a deal. "It's not done until it's done, so I don't think this is the end of it," he said.  

Headquartered in Toronto, The CPP Investment Board invests the funds not needed by the Canada Pension Plan to pay current benefits on behalf of 17 million Canadian contributors and retirees.

At the end of June, the CPP Fund had $116.6 billion (Canadian) in assets, of which $18.4 billion were private investments. The board has investments in stocks, real estate, inflation-linked bonds, infrastructure and fixed income financial instruments.

The two Canadian pension funds already hold 28 per cent of Transurban. Its holdings include the Pocahontas 895 in Virginia and the Hills M2 in New South Wales, Australia's most populous state.

The move follows another high-profile bet on transportation assets. Warren Buffett's Berkshire Hathaway Inc. bid $44 billion on Nov. 3 for the three-quarters stake in railway Burlington Northern Santa Fe Corp. it didn't already own.