Atlas flags potential potholes in $2.9bn purchase of Chicago Skyway

ATLAS Arteria has warned investors that uncertainty remains “around the exact age and condition” of parts of the Chicago Skyway it has agreed to acquire in a $2.9bn deal, but says it will conduct a full audit of the asset after the purchase.

In documents outlining the acquisition, the toll road giant – now in a dispute over the deal with its largest shareholder IFM Investors – notes the Skyway could be in worse condition than expected, resulting in “higher maintenance cost than estimated”.

Atlas intends to conduct “targeted structural audits” and test “critical pavement and structure elements” to validate the Chicago Skyway’s condition, but this will only occur post-acquisition.

“There is a risk that these post-completion audits may identify the need for capex expenditure beyond what has been budgeted,” investor documents state.

Atlas is acquiring a 67 per cent stake in the 12.5km toll road, an agreement that includes an option for the Ontario Teachers Pension Plan to sell its stake at a 7.5 per cent premium to fair market value if there is a change of control at the ASX-listed company. Atlas has paid a multiple of 43.2 times Chicago Skyway’s earnings in the last financial year.

The acquisition faces increasing criticism from parties including IFM, which owns 19 per cent of Atlas. In a letter to the company, the super fund investment vehicle said the deal would be “significantly value destructive”.

“We do not believe the company could construct any credible set of parameters or assumptions in order to justify the pursuit of the Chicago Skyway acquisition,” wrote Kyle Mangini, IFM’s head of infrastructure, and Aaron McGovern, its executive director, earlier this week.

IFM in August separately raised concerns that the Skyway deal would be “highly dilutive to distributions” and said its reservations were shared by other major Atlas shareholders. IFM said it would consider all options, including seeking an accelerated board transition by way of an extraordinary meeting to protect its interests as a shareholder.

The Skyway opened in 1958 and is 18 years into a 99-year lease after it was privatised by the City of Chicago in 2005.

Atlas told investors it did not expect any major works on the Skyway until 2050, and since 2000 $US450m ($665m) had been spent on maintenance.