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2/21/2011
Toll Road Giant Makes Second Offer to Buy Redflex
Macquarie Bank and Carlyle Group make $300 million bid for Redflex Traffic Systems.

Macquarie Redflex
Redflex Traffic Systems of Australia today announced that the Australia-based toll road giant Macquarie and the asset management firm Carlyle Group would spend $300 million to dominate the red light camera and speed camera business.

"The proposed acquisition of Redflex by the consortium will be by way of a scheme," Redflex stated in its announcement to the Australian Securities Exchange. "The scheme is subject to certain conditions including Redflex shareholder and court approval, regulatory approvals and other conditions that are usual for a transaction of this nature."

If approved, shareholders would receive $2.70 per share for the company that was trading for $1.53 as late as June. That was when rumors began circulating that Macquarie, Siemens and rival American Traffic Solutions (ATS) were making moves to buy Redflex. The hopes of a quick payoff inflated the stock to its present price of $2.61. The board rejected Macquarie's June offer of $2.50 per share, sparking a shareholder revolt. The replacement board approved the present offer unanimously.

Purchasing Redflex comes with substantial risk. Redflex bases its US operations in Arizona, one of several states poised to ban photo enforcement. Earlier this month, the South Dakota House of Representatives voted by a near two-to-one margin to join the fifteen states that have banned automated ticketing machines. Redflex also faces assaults on its largest market, California, in the form of an anti-camera voter initiatives, appellate courts throughout the state finding red light camera ticket evidence inadmissible and a growing number of cities deciding to drop red light cameras entirely. These include Loma Linda and Whittier, Moreno Valley, San Carlos, Union City, Yucaipa and Costa Mesa. In November 2010, 73 percent of Anaheim residents voted to ban cameras. Cupertino, Compton, El Monte, Fairfield, Fresno, Fullerton, Indian Wells, Irvine, Maywood, Montclair, Paramount, Rancho Cucamonga, Redlands, Roseville, San Jose (photo radar), Santa Fe Springs, Santa Maria, Santa Rosa, and Upland have rejected their automated ticketing programs.

Macquarie is willing to take the risk. The company is known for its skill in harnessing government guarantees and heavily leveraged debt to purchase assets such as the Indiana Toll Road, the Dulles Greenway in Virginia and the Skyway in Chicago, Illinois. The high-risk, high reward strategy has earned Macquarie the nickname "millionaire's factory." Others look at the opaque nature of Macquarie's books and see echoes of Enron. These include New York hedge fund manager Jim Chanos, the first to suggest Macquarie's financial structure was unsound.

Redflex executives stand to profit substantially from the deal. The head of US operations, Karen Finley, holds $1,582,897 worth of shares and performance rights. She already cashed in $59,659 worth of stock in December. During the bidding process, Redflex agreed not to bid on any substantial contracts or accumulate any debt until July 31.



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