Shares in toll road company Macquarie Atlas Roads Limited (ASX: MQA) climbed 4.6% higher to $5.91 on Monday, after the company announced it had reached an agreement with Macquarie Group Ltd (ASX: MQG) to terminate their external management arrangement.
The arrangement will remain in force for a further 12-month period following the Macquarie Atlas AGM on May 15, after which current CEO James Hooke will step down and return to Macquarie Group. During this period, Macquarie Atlas will appoint a new CEO tasked with the recruitment of a new management team and the establishment of the necessary infrastructure for the company to manage its own operations independently.
The company will continue paying management fees of 0.85% of its market value to Macquarie Group until May 2019, and then will provide a monthly transition fee for of $750.000 for an additional 6 months and a final performance fee. This long and costly hand-over is intended to ensure a smooth transition at the helm.
However costly the transition might be, Macquarie Atlas Roads will make substantial savings from internalising management. Since listing in 2010, the company paid nearly $400 million in management and performance fees, while the cost of in-house management is estimated between $15 million and $20 million.
For the time being, Macquarie Group will continue to manage Macquarie's Atlas interest in the French APRR toll road, given the complexity of management arrangements concerning this asset.
The agreement is subject to shareholders' approval at the next AGM. If successfully implemented, it will result in Macquarie Atlas Roads Limited changing name and ticker code to become Atlas Arteria, ASX ticker: ALX.
Foolish takeaway
Macquarie Atlas Roads Limited is a solid infrastructure business with stable cash flows, changing hands at 6x earnings. I would have recommended it regardless of this update.
Cutting ties with Macquarie Group, the company will make considerable savings and gain independence, another reason to buy this stock and hold it for the long term.
