Blackstone’s Italian gambit for Atlantia may still be on the road

The Benetton and Blackstone have started up. Fearing a takeover bid by ACS and the GIP and Brookfield funds, the American venture capital titan and auto magnates led by Alessandro Benetton are offering €19 billion in cash, plus a dividend, to buy the Atlantia infrastructure group, of which the Benettons are partially owners. At 58,000 million, debt included, the operation seems exorbitant. Still, the inflation-protected yields and proceeds from an asset sale explain the appeal.

An investment vehicle co-owned by the billionaires and Blackstone will offer 23 euros per share to Atlantia investors plus a dividend of 0.74 euros. This figure is almost 40% higher than the stock’s six-month average price. It significantly raises the bar for funds Brookfield and Global Infrastructure Partners, who have also expressed interest after siding with Atlantia’s on-and-off partner and ACS chairman Florentino Pérez.

Adding net debt of nearly $39 billion at the end of 2021, the offering values ​​the Milan-listed company at $58 billion, not including some $9 billion of minority interests and other adjustments. This figure multiplies by 11 the ebitda of 5,100 million that Atlantia aims to reach in 2024, well above the 6.5 times of its French rival Vinci, which also has a construction business. But it is in line with Aéroports de Paris valuations, according to Refinitiv estimates.

Blackstone brings an extra dose of leverage to the process. It provides just over 4,000 million euros of capital to its acquisition vehicle, in which the Benettons will deposit their 6,500 million stake. The additional 8,000 million of debt to finance the 19,000 million of capital, plus dividends, would raise Atlantia’s global leverage to more than 47,000 million.

Still, the deal looks better considering the agreed sale of Atlantia’s Italian motorway unit ASPI. Atlantia will enter 8,000 million and will lose almost 9,000 million of debt. This reduces the value of the company to 50,000 million, after taking into account minority interests and other adjustments. Assuming Atlantia achieves EBIT without ASPI of 2.2 billion in 2024, the after-tax return would be just below the company’s estimated cost of capital, around 4%, according to our calculations. But profitability should improve after 2025, when Atlantia’s airport business could be fully recovered from the pandemic.

Highways and airports can be powerful hedges against rising inflation. Infrastructure groups often hold regulated concessions that are linked to price increases. More than 70% of the assets owned by infrastructure companies have the potential to pass on the impact of inflation to customers, according to a study by Colonial First State Asset Management. That’s valuable to pension funds and sovereign wealth funds that invest in Blackstone products. And it means his Italian gambit could work.