The Fuqua School of Business at Duke University

FUQ-04-2010
Rev. April 30, 2010

Autopista Central, S.A.

The Valuation of a Toll Road Project in Chile
TEACHING NOTE
Synopsis
This case is set in mid-November 2007, with Manuel Flores, senior vice-president of
business development for the Spanish construction and services company ACS, evaluating a
proposal by the Spanish toll-road operator Abertis and the private equity arm of the Spanish bank
Santander to buy ACS 48% equity stake in the Chilean toll road Autopista Central. The would-be
buyers are operating on a tight schedule and therefore want a proposed sale price from ACS by the
end of the year. To provide a price that is reasonable to both sides, Flores will have to determine an
appropriate discount rate to value Autopista Centrals future cash flows as well as consider the
strategic goals of ACS while factoring in the prevailing macroeconomic environment of late 2007.
Two factors make Flores valuation of Autopista Central difficult. First, Chile, although one
of the wealthiest countries in Latin America on a GDP per-capita level, is still considered an
emerging economy which is characterized by a number of market inefficiencies. These inefficiencies
violate many of the assumptions of the Capital Asset Pricing Model (CAPM) which make the
utilization of traditional CAPM based methods inappropriate for effects of calculating a projects
cost of capital. If he could not use the CAPM, what model should Flores use?
Second, besides considering the intrinsic value Autopista Centrals cash flows, Flores must
think about the timing of the proposed sale. Specifically, the run up to the time of the case was
characterized by a long period of historically low interest rates and record levels of liquidity leading
to a global real-estate bubble. As a result, going forward some speculated that world prices would
fall sharply while others argued that new real-estate price levels were the new normal. How would
the state of the macro environment affect the price that Flores asked for?

This note was prepared by David Keller, Belisario Galarcep, Massimo Paone, and Javier Vilardell under the supervision of
Professor Campbell R. Harvey for the sole purpose of aiding classroom instructors in the use of Autopista Central, S.A., The
Valuation of a Toll Road Project in Chile, FUQ-04-2010. It provides analysis and questions that are intended to present
alternative approaches to deepening students comprehension of business issues and energizing classroom discussion.
Copyright 2010 - all rights reserved. The Fuqua School of Business, Duke University, 1 Towerview Drive,
Durham, NC 27705, USA. http://www.fuqua.duke.edu .

TEACHING NOTE - Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Pedagogical Objectives
This case is part of a module on calculating the cost of capital in an emerging market in the
elective curriculum course entitled Advanced Topics in Corporate Finance. It was designed for
MBA students and executives with either a financial or strategic interest in emerging-market
investments. For this reason, it is appropriate for business, public policy, government, strategy, and
international finance courses. The case has three pedagogical objectives:
1. It discusses the valuation of a long-term project in a developing country environment and
highlights many of the common emerging market-risk factors that a manager must consider
when calculating a projects cost of capital in such a setting.
2. It presents the Damodaran Modified World CAPM and Erb-Harvey-Viskanta Cost of
Capital (EHV) models as an alternative to the traditional CAPM given that this method relies
on assumptions that are largely absent in emerging markets and therefore have limited
practical value in an emerging market context.
3. It considers some of the qualitative factors that a selling party should consider when
considering the sale of an asset such as strategic goals and market conditions.

Substantive Analysis
Class discussion falls into three main topics: (1) an initial discussion of the history of the
project including a description of the current owners and proposed owners, (2) how the projects
risks and other inputs should be translated into the Damodaran Modified World CAPM and the
EHV cost of capital calculator (Note: The accompanying Microsoft Excel spreadsheet file
<<Autopista Central_Exhibits.xls>> is an integral part of this case and necessary to complete this
cases cost of capital calculation) to produce a range of appropriate discount rates for the project and
(3) the derivation of an appropriate range of values for ACS stake in the project. The class ends
with a final discussion about the price that ACS should ask for its stake in Autopista Central.

Project History and Background

To begin the discussion, the instructor should ask members of the class to give a brief
synopsis of the Autopista Central project. The audience should be able to recall some very basic facts
about the context of the project. Some of the particulars that are of importance include the state of
the Chilean economy in 2007 (over a decade of democratic rule, history of free-market reforms,
reputable central bank, moderate but steady inflation), the mechanics of the Autopista Central toll
road concession (concession of 30 years, construction fully completed by April 2007), the location
of the project (Santiago which accounts for roughly 43% of Chiles GDP and where around 40% of

TEACHING NOTE - Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

the total Chilean population lives), and the concept of the project (first free flowing toll system in
Chile which connects to other major Chilean highways).
The instructor should discuss with the class the ownership structure of Autopista Central by
referring to Exhibits 4a and 4b. Upon doing so we confirm that the company is effectively owned
48% by ACS and 48% by Skanska with the remaining 4% of shares being held by two Chilean
construction companies.
Who are the common equity owners of Autopista Central and what are some of their interests
and motivations? Both Skanska and ACS are very similar in the sense that both are large
multinationals with a broad experience in a number of emerging markets like Chile. Both companies
have a little over 50% of their voting shares floating in public markets although ACS has only four
shareholders of non-public shares that control 48.5% of the company. In addition, most of the
non-public shares of Skanska are held by institutional investors. Both companies are better known
for their construction capabilities than for their post-construction management of projects.
The class should be able to describe the details of the capital structure of the project. For
example, total invested capital is $815 million which is composed of $87 million in common equity
+ $603 million in debt + $125 million in subordinated debt. What are the characteristics of the
bonds that were issued to finance the project? If the students translate all of Exhibit 11 to USD,
they will get the following:
Date
Description
18-Dec-03 Amount issued in Chile (USD)
22-Dec-03 Amount issued in USA (USD)
Total Amount Issued (USD)

15-Dec-03
$353,000,000
$250,000,000
$603,000,000

This table will be useful later on when determining the projects weight of debt in the capital
structure which will be needed to value the equity of Autopista Central.
Finally, the instructor should briefly mention something of the interests of the proposed
buyers of ACS equity stake. To begin, why does Abertis want a piece of Autopista Central? Besides
being a company whose core operating strength is the operation of public infrastructure projects,
the firm is also looking to add complementary assets to its Chile infrastructure portfolio which
includes two large toll roads, parking lots, a logistics center, and the Santiago airport. Why is
Santander so keen on investing in the toll road project? At this point in 2007 Santander Private
Equity is looking to build up a pipeline of investments that it can later pass on to the proposed $2.1
billion Santander Infraestructuras II (S2) fund. To do so the bank is eager to put up its own capital
immediately. Also, although not implicitly stated, the fact that all three firms ACS, Abertis, and
Santander are Spanish makes doing business culturally, linguistically, and perhaps fiscally favorable.

TEACHING NOTE - Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Autopista Centrals Cost of Capital

To estimate the value of the project we recommend using the discounted cash flow (DCF)
method. In addition, we will estimate the internal rate of return (IRR) to incorporate in the analysis.
In the case of the DCF, we will discount Autopista Centrals cash flows by the projects weighted
average cost of capital (WACC) which incorporates the total costs to the firm for both debt and
equity capital. Consequently, the cash flow projections to be discounted will be the total cash
available to both debt and equity holders.
The Discount Rate
The effective discount rate or cost of capital of the project is composed of the cost of equity
and the cost of debt (adjusted by the tax shields that the firm gets from the interest payments on
debt).
WACC = re x E/(D+E) + rd x (1-tc)x D/(D+E)
Where:
re: Cost of equity
rd: Cost of debt
E: Firm equity value
D: debt value
tc : corporate tax rate
In this case we are assuming that the equity value and debt value in the projected financial
statements reflect market values.
1. Calculating the Cost of Capital
To obtain the cost of equity of the project the firm has many CAPM-based alternatives to
choose from. But, considering that in emerging markets risk can appear in different ways and can
affect a project in different ways as well, the Erb-Harvey-Viskanta Country Risk Rating method is
the recommended model to use to best incorporate an array of risks into Autopista Centrals cost of
capital calculation.
Parameters involved in the cost of equity calculation using the Erb-Harvey-Viskanta Country
Risk Rating method were the following:
a) U.S. Risk Free Rate:
The average US Treasury Long Term Rates from daily rates are the following.

2005
2006
2007

LTComposite

Treasury

(>10 yrs)

20-yrCMT

4.57%
4.97%
4.87%

4.64%
5.00%
4.91%

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FUQ-04-2010

b) U.S. Equity Risk Premium

Based on the CFO Survey about Equity Risk premium, the 2007 reports shows that the
premium over the 10-year Treasury Bond is 4.58%.
c) Institutional Investor Sovereign Credit Ratings
According to Institutional Investor, the United States and Chile had the following Credit
Ratings in 2007.
Intervals
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07

U.S.
92.4
92.5
93.5
94.5
94.0
94.1

Chile
70.0
71.6
73.6
73.2
76.4
77.6

d) Beta ( )
The beta of the project measures the risk of the project relative to the market risk. In
the case of Autopista Central, Exhibit 15 provides a list of the betas of comparable firms. The
median beta from this list is 0.85 which we recommend adjusting according to the Morgan Stanley
beta adjustment method which incorporates mean reversion to the beta of the market (i.e., 1).
The Morgan Stanley adjusting formula is the following:
= [Estimate x (2/3)] + [ 1 x (1/3)]
Where:
:
Beta of project
Estimate: Estimated beta of project from comparables or other method (e.g., OLS regression)
Upon doing so, we arrive at a project beta of 0.90. Nevertheless, based on the analysis
of the factors that affect the project, we believe that the beta should be even closer to that of the
market (i.e., closer to one). As a result, we used a beta range between 0.90 and 1.10 in both the
Damodaran Modified World CAPM and the EHV cost of capital calculator which, together with
the other inputs, yields different costs of equity.
The factors that we analyzed for the beta were the following.
i.

Business: in terms of business risk, it has a medium level because of the following
factors.
Stage Risk: The toll road is in its post-completion stage, the toll road has been
completely operational since 2006.
Revenue Risk: The implementation and use of an electronic payment system has
been done successfully. Thus, Revenue Risk is expected to be low.
Traffic Risk:
5

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FUQ-04-2010

o Santiago represents 32% of the overall Chilean population.

o The GDP of the zone encompasses approximately 40% of the total Chilean
GDP.
o Users of the North and South corridor represent 35% of all the city vehicles.
o At least 65% of the vehicles from the Metropolitan area pass through the
North and South corridor once per month.
o In market surveys, citizens of Santiago (potential users) demonstrated that
they increasingly will use Autopista Central.
o The usage of the road is highly correlated with the economy of Chile which
has been stable and growing.
ii.

Operating Leverage: The project has high fixed costs compared to variable costs and
thus represents a higher operational risk. The major costs are depreciation and
administrative expenses which is normal in the public infrastructure sector.

iii.

Financial Leverage: The project has a highly leveraged structure which increases the
risk. The book value of interest bearing liabilities divided by the Stockholders Equity
between 2006 and 2007 has been higher than 4 (4.9 and 4.2 respectively).

2. Cost of Debt
The cost of the firms debt was assumed to be reasonably captured by the stated coupon rates of
Autopista Centrals outstanding debt. The companys debt as of November 2007 was the
following:
Bonds
US $
UF
Related Companies
Total

127,732,638
255,790,065
63,053,323
446,576,026

28.6%
57.3%
14.1%
100.0%

The coupon rates of the above referenced bonds are the following:

The USD bonds have a coupon rate of 6.223% which was assumed to be the cost of
debt in USD. To transform the USD interest rate to Chilean Pesos we used the PPP
rule which requires adjusting the rate according to difference in the inflation of the
United States1 and the inflation of Chile2.

US Inflation of 2.190% estimated by Aswath Damodaran

2 Chile Inflation of 7.4% (2006 Autopista Central Financial Statements, Note 2)

TEACHING NOTE - Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

The simplified Power Purchase Parity (PPP) formula assumes that difference in interest
rates between countries can be explained by differences in each countrys respective
inflation. The PPP formula that was used is the following:
(1+iUS) / (1+InflationUS) = (1+iChile) / (1+InflationChile)
Where:
iUS:
InflationUS:
iChile:
InflationUS:

USD interest rate

Inflation rate in the United States
Chilean Peso interest rate
Inflation rate in Chile

Upon applying the PPP formula, we calculated the adjusted interest rate in Chilean Pesos
to be 6.540%.

Bonds in Unidades de Fomento have an interest rate of 5.300% which was assumed to be
the cost of the firms debt in said currency.

The interest expense of the obligations with related companies is at the cost of equity, which is
what we estimated previously.

3. Calculating the Cost of Equity Capital with the Damodaran Modified World CAPM
The calculation of the Damodaran Modified World CAPM (MW-CAPM) is fairly
straightforward given that 100% of the revenues of Autopista Central are derived in Chile. That is,
the calculation of the Lambda weight that the student is to weight Chiles Country Risk Premium
(CRP) by is:
Calculation of Lambda
% of Revenues Derived Locally
100%
Lambda = ------------------------------------- = --------------=
Ave. % of Revenues Derived
100%
Locally for Similar Project

1.00

By using the CRP of Chile that was given in the case (2.10%), the resulting costs of equity
capital with this Lambda weighting for the three different project Betas calculated above is:
100% Weighting of Country Equity Risk Premium (Lambda = 1.00)
Project Beta
0.90
Rf
4.91%
Equity Risk Premium
4.58%
Lambda
1.00
Country Equity Risk Premium
2.10%
Modified World CAPM Cost of Equity Capital (USD)
11.13%

1.00
4.91%
4.58%
1.00
2.10%
11.59%

1.10
4.91%
4.58%
1.00
2.10%
12.05%

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FUQ-04-2010

The resulting costs of equity capital in USD are then translated into costs of equity capital in
CLP using the PPP formula described above to obtain the following rates:
Cost of Equity (in Chilean pesos)
Project Beta

11.70%
0.90

12.18%
1.00

12.66%
1.10

4. Calculating the Cost of Equity Capital with the Erb-Harvey-Viskanta Model

The first inputs to the EVH calculator - U.S. risk-free rate, U.S. equity risk premium, U.S.
and Chile Institutional Investor Country Credit ratings should be fairly straightforward as most can be
found in the case document itself. In addition, the instructor should remind the class that the EHV
calculator is formatted to accept only USD based rates. The rates that we used for the initial inputs
were the following:
RISK PREMIUM CALCULATIONS
Inputs
Output Category
4.91
U.S. risk free in %
4.58
U.S. risk premium in %
94.10
Current U.S. Credit Rating
153.00
Current Sovereign Spread in basis points
77.60
Institutional Investor country credit rating (0-100)
52.59 Implied Institutional Investor CCR based on Spread
53.95 Implied Institutional Investor CCR based on Spread
19.79 Anchored Cost of Equity Capital for project of average risk in country (ICCRC)
10.30

Country Risk Premium

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FUQ-04-2010

Once the class is in general agreement about the initial inputs, the instructor should move
onto to the discussion of the project risk mitigating factors of the EHV calculator. In this part of the
spreadsheet the student must assign a score to each of 11 factors that can increase or reduce the
country risk premium that was calculated in the first section of the calculator. Here the conversation
should be geared toward incorporating the information given in the section of the case entitled
Qualitative and Quantitative Inputs for the Erb-Harvey-Viskanta Cost of Capital Model. The instructor should
walk through all eleven factors with the students and try get a consensus for the values to be
assigned. Our inputs and corresponding values were the following:
PROJECT RISK MITIGATION
(-10 to 10; where 10=risk completely eliminated, 0=average for country)
Impact on
Country
Weights
Score
Premium

Sovereign
0.40
0.10
0.15
0.05
0.05
0.05
0.05

5.00
10.00
8.00
9.00
-10.00
-2.50
-8.00

-2.06
-1.03
-1.24
-0.46
0.51
0.13
0.41

Currency (direct, e.g. convertibility)

Currency (indirect, e.g. political risk caused by crisis)
Expropriation (direct, diversion, creeping)
Commercial International partners
Involvement of Multilateral Agencies
Sensitivity of Project to wars, strikes, terrorism
Sensitivity of Project to natural disasters

Operating
0.05
0.03

8.00
10.00

-0.41
-0.26

Resource risk
Technology risk

Financial
0.05
0.03
1.00

9.00
0.00

-0.46
0.00

Probability of Default
Political Risk Insurance
Sum of weights (make sure = 1.00)

Remind the class of the discussion of the beta that was had earlier and show them in the
spreadsheet how a change in this input can change the output of the model.
With the risk inputs above, the EHV cost of capital calculator produces rates in USD for the
three different project betas mentioned above. Again, these rates are then translated into costs of
equity capital in CLP using the PPP formula described above to obtain the following rates:
Cost of Equity (in Chilean pesos)
Beta
Cost of Equity (in US $)

15.20%
0.90
14.463%

15.68%
1.00
14.921%

16.16%
1.10
15.379%

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5. Damodaran Modified World CAPM WACCs

Using the corporate tax rate, the cost of debt capital, the Damodaran Modified World CAPM
cost of equity capital, and the weights of debt and equity in the capital structure, respectively, the
WACCs for the three different project betas previously discussed were calculated and can be
summarized below:
Damodaran Modified World CAPM WACC's Sensitivity To Changes in Project Beta
WACC (in Chilean Pesos)
Cost of Equity
Equity/ Invested Capital
Cost of Debt
Debt / Invested Capital

a) Cost of Equity (in Chilean pesos)

Project Beta
Cost of Equity (in US $)

b) After Tax Cost of Debt (in Chilean Pesos)

Income Tax
Cost of Debt

b.1. Estimation of Cost of Debt

i. Coupon Rate
Bonds
US $ (PPP)
UF
Related Companies
ii. Inflation for PPP adjustment
Inflation Chile
Inflation US
b.2. Debt Structure 2007
Bonds
US $
UF
Related Companies
Total

c) Invested Capital
Debt (interest bearing liabilities)
Equity
Total Invested Capital

6.74%
11.70%
20.8%
5.4%
79.2%

6.89%
12.18%
20.8%
5.5%
79.2%

7.03%
12.66%
20.8%
5.6%
79.2%

11.70%
0.90
11.132%

12.18%
1.00
11.590%

12.66%
1.10
12.048%

5.44%
17.0%
6.558%

5.50%
17.0%
6.626%

5.56%
17.0%
6.694%

6.540%
5.300%
11.699%

6.540%
5.300%
12.180%

6.540%
5.300%
12.662%

28.6%
57.3%
14.1%
100.0%

28.6%
57.3%
14.1%
100.0%

28.6%
57.3%
14.1%
100.0%

446,576,026
116,978,326
563,554,352

446,576,026
116,978,326
563,554,352

446,576,026
116,978,326
563,554,352

7.400%
2.190%

127,732,638
255,790,065
63,053,323
446,576,026

10

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FUQ-04-2010

6. EHV Based WACCs

Using the corporate tax rate, the cost of debt capital, the EHV cost of equity capital, and the
weights of debt and equity in the capital structure, respectively, the WACCs for the three different
project betas previously discussed were calculated and can be summarized below:
EHV WACC's Sensitivity To Changes in Project Beta
WACC (in Chilean Pesos)
Cost of Equity
Equity/ Invested Capital
Cost of Debt
Debt / Invested Capital

a) Cost of Equity (in Chilean pesos)

Beta
Cost of Equity (in US $)

b) After Tax Cost of Debt (in Chilean Pesos)

Income Tax
Cost of Debt

b.1. Estimation of Cost of Debt

i. Coupon Rate
Bonds
US $ (PPP)
UF
Related Companies
ii. Inflation for PPP adjustment
Inflation Chile
Inflation US
b.2. Debt Structure 2007
Bonds
US $
UF
Related Companies
Total

c) Invested Capital
Debt (interest bearing liabilities)
Equity
Total Invested Capital

7.79%
15.20%
20.8%
5.9%
79.2%

7.94%
15.68%
20.8%
5.9%
79.2%

8.08%
16.16%
20.8%
6.0%
79.2%

15.20%
0.90
14.463%

15.68%
1.00
14.921%

16.16%
1.10
15.379%

5.85%
17.0%
7.053%

5.91%
17.0%
7.121%

5.97%
17.0%
7.189%

6.540%
5.300%
15.200%

6.540%
5.300%
15.682%

6.540%
5.300%
16.163%

28.6%
57.3%
14.1%
100.0%

28.6%
57.3%
14.1%
100.0%

28.6%
57.3%
14.1%
100.0%

446,576,026
116,978,326
563,554,352

446,576,026
116,978,326
563,554,352

446,576,026
116,978,326
563,554,352

7.400%
2.190%

127,732,638
255,790,065
63,053,323
446,576,026

11

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FUQ-04-2010

Valuation Results
By using the financial statements included in Exhibit 16 and their accompanying
assumptions in Exhibit 17, the students should be able to roughly estimate the unlevered free cash
flows of the project. These cash flows, which do not have a terminal value (when the project ends
any remaining owners equity is dividend back to the owner), are the cash flows that are to be
discounted by the WACC derived above. The following graph shows how the Sales, EBITDA, and
Unlevered Free Cash Flows of Autopista Central change over the life of the project.

Autopista Central
Key Financial Metrics

$450,000,000
$400,000,000

Thousands of CLP

$350,000,000
$300,000,000
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$0
2005

2007

2009

2011
Sales

2013

2015

EBITDA

2017

2019

2021

2023

2025

2027

2029

Unlevered Free Cash Flow

Upon discounting the projects unlevered free cash flows in a manner that accounts for the
changing capital structure, we obtained a range of values for the 48% common equity stake of ACS
in Autopista Central that went from $524 to 556 million under the Damodaran Modified World
CAPM approach and $647 to 684 million using the EHV approach. The following graph shows
how the equity value of ACS interest in Autopista Central changes with changes in the project beta
used in both the Damodaran Modified World CAPM and EHV methods.
ACS' Equity Value's Sensitivity to Changes in Assumed Project Beta
ACS Equity Value (USD Mln)

$800,000
$684,702

$700,000
$600,000

$555,763

$665,693
$539,627

$647,111
$523,845

$500,000
$400,000
$300,000
$200,000
$100,000
$0
0.90

1.00

1.10

Project Beta
EHV

CAPM with SS Adjustment (Lambda = 1.00)

12

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How Much Should ACS Ask For?

As shown above, we estimate the range of values for the 48% common equity stake of ACS
to be between $647 to 684 million under the Damodaran Modified World CAPM approach and
$524 to 556 million using the EHV approach. This range of values is based on WACC values that
range between 6.74% and 7.03% when the cost of equity capital is calculated using the Damodaran
Modified World CAPM and 7.79% to 8.08% in the case of the EHV methodology. At these
valuations, the range of the total value of the 100% common equity of Autopista Central goes from
$1.3 to 1.4 billion under the Damodaran Modified World CAPM scenario and $1.1 to 1.2 billion
under the EHV scenario. This range of values is significantly higher than the amount of invested
capital in the project of $813 million (including subordinated debt).
At this point, the instructor should ask for opinions from the class regarding possible sale
prices based on the above mentioned range of values. Who believes that ACS should push for the
high end of the price range? Why? Does anyone believe that ACS would be justified in asking for
the low end of the price range?
Besides the fact that asking for an initial high price is a good idea in negotiations, we believe
that ACS should ask for the highest value obtained in the Damodaran Modified World CAPM
model or $685 million. This is recommended because we believe that Abertis and Santander should
pay a control premium of 10 20% given the macro economic conditions of the time and the
strategic value that the Autopista Central asset means for each prospective buyer. If we apply the 20%
control premium to the highest range of the EHV based valuation of $556 million, we obtain a value
of $667 million. This value is within range that ACS will be pressing to use under the more
favorable discount rate that using the Damodaran Modified World CAPM provides them.
Abertis, who is an expert in managing existing toll roads, would presumably be able to
generate cost synergies if not revenue synergies when operating Autopista Central. Furthermore, said
synergies would probably be easier to realize as the toll road would fit into Abertis existing Chilean
infrastructure portfolio and probably allow for some reduction in duplicated administrative
expenses.
In the case of Santander, finding attractive infrastructure investments that could help them
draw more investors to the S2 private equity fund by showing a winning project already in the
pipeline. A project in Chile, where they are the market leader, must certainly give them a boost of
confidence when evaluating the risks and rewards that such an opportunity encompasses.
Santanders high interest in Autopista Central can be easily inferred by the fact that the bank is
proactively seeking to buy ACS stake rather than the other way around.
Finally, given the exceptionally high prices of real-estate and infrastructure at the time of the
case, ACS could easily justify asking for a premium above the value yielded by the DCF model.

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TEACHING NOTE - Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

What Happened?
In December 2007 ACS agreed to sell both its 48% stake in Autopista Central as well as its
50% ownership in another Chilean toll road to a consortium owned 57.7% by Abertis and 42.3% by
Santander (with the goal of Santander being to pass its investment over to the S2 infrastructure fund
once said fund had been closed). In addition, the consortium purchased another 2% of Autopista
Centrals equity from one of the minority Chilean shareholders. The remaining Chilean minority
shareholder sold his 2% stake to Skanska at the same time. As part of the deal Abertis took over
operational control of the day to day activities of Autopista Central.
In total, Abertis and Santander paid $1.08 billion ( 728 million) for the 50% stake in
Autopista Central (48% stake from ACS and 2% stake from minority shareholder) and the 50% stake
that ACS controlled in the additional toll road. The firms, however, did not disclose the exact
amount of the total purchase price that was allocated to each equity purchase. Nevertheless, based
on an Abertis shareholders presentation that was issued to announce the deal in December 2007, we
estimate that the ACS stake in Autopista Central was valued at just over $620 million. If accurate, this
sale price is the falls roughly between the ranges offered by the Damodaran Modified World CAPM
and EHV valuation approaches.

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