The Transurban Group (ASX: TCL) share price is up even though the ACCC has raised concerns about the toll road operator.
Transurban builds, owns and operates toll roads in Australia and North America.
ACCC attention on Transurban
The Australian Competition & Consumer Commission (ACCC) has raised ‘preliminary competition concerns’ about Transurban’s proposed acquisition of a majority interest in Horizon Roads Pty Ltd.
Horizon Roads operates the EastLink toll road in Melbourne. Transurban already operates the CityLink toll road and is building, and will operate, the West Gate Tunnel toll road.
The ACCC is concerned about the possible impact of the proposed acquisition on competition for future toll road concessions in Victoria. In other words, the ACCC is concerned how other competitors may be able to compete for future toll roads if Transurban acquires EastLink.
The regulator thinks that Transurban’s advantages from existing toll road operations, including traffic modelling capabilities and expertise, and access to traffic data, need to be “further examined.”
The ACCC said that it’s concerned that the proposed acquisition may deter a potential rival emerging for future toll road concessions. The ACCC thinks an alternative bidder will buy Horizon Roads if this deal doesn’t go ahead.
But, I’d suggest getting the deal across the line would be positive for the Transurban share price.
ACCC comments
The ACCC Chair Gina Cass-Gottlieb said:
We are considering Transurban’s advantages from already owning two toll road concessions in Melbourne, and the extent to which owning a majority interest in Horizon Roads will further advantage it when competing for future toll road projects.
We are also considering whether Transurban benefits from lower cost finance due to perceptions of its existing market position, and how this may further entrench its advantages over other competitors after the acquisition.
Without the transaction, Horizon Roads could provide an alternative toll road owner or operator with the opportunity to gain some of the capabilities and incumbency advantages held by Transurban. This includes Horizon Road’s traffic modelling capabilities, which may be leveraged to bid competitively for future toll road projects in Victoria.
Final thoughts on the Transurban share price
While the toll road operator’s share price has dropped back a little over the last few weeks, I don’t think it represents incredible value.
I like its regular cash flow generation, but higher interest rates make infrastructure plays less attractive in my eyes, because we can get a stronger income return from safer savings accounts. There are other ASX dividend shares that I think can deliver stronger total returns (share price plus dividends) from here.
