Is Transurban’s (ASX:TCL) grip on Sydney roads set to tighten?

Transurban Group (ASX: TCL) is Australia’s largest toll-road operator. By a long shot. The company is now the 10th largest company on the S&P/ASX 200 Index (ASX: XJO). Even though Transurban shares are down 1.3% today to $14.77, the company still has a market capitalisation of $40.5 billion.

Now Transurban is already a company with a market position of dominance. It owns or at least has stakes in 17 motorways around the country, as well as another 4 in the United States and Canada. The 17 Australian tollways are spread across Melbourne, Brisbane and Sydney. Transurban’s Brisbane roads include the Gateway and Logan motorways. Its Melbourne roads are the Western Link and the Southern Link.

But it’s Sydney that is the real crown jewel in Transurban’s portfolio. The company owns a stake in every single tolled-road across the city, with the exception of the Sydney Harbour Bridge and Tunnel roads.

That includes the M2, M7 and M5 motorways, as well as the just-opened NorthConnex tunnel, one of the longest and deepest road tunnels in the country, and the ‘missing link’ in the Sydney orbital network.

Transurban eyes WestConnex

But this grip on the city’s largest arterial roads could be set to tighten even further. According to reporting in the Australian Financial Review (AFR), the New South Wales government is preparing to put up its remaining 49% stake of the mammoth WestConnex road project up for sale. Transurban already owns the other 51% stake.

The AFR reports that the NSW government will split this 49% stake into 2 24.5% tranches. Transurban has been told by NSW that it will have to bid for the remaining tranches “at the same time as other investors”.

If Transurban is successful in acquiring the remaining tranches of Westconnex, its dominance of Sydney’s roads will be even more complete. WestConnex is the collective name for a series of 3 major motorways in Sydney. It involves an extension and widening of the existing M4 motorway (linking Sydney’s inner west with the Blue Mountains). It also involves duplication of the existing M5 tunnel (which has just been completed) as the M8 motorway. As well as a new motorway linking the M4 motorway with the M8 under Sydney’s inner west.

The AFR describes Transurban as “the most logical buyer” for the remaining 49 per cent WestConnex stake”, stating:

Transurban operates and has stakes in every other tollroad in Sydney (excluding the harbour crossings). It knows Sydney’s road network and traffic volumes better than anyone, and is a fearsome competitor when it comes to bidding for new or existing roads.

But we will have to wait and see if Transurban wins the bid. And is indeed willing to cough up the reported $9-10 billion that the 2 tranches are estimated to be worth.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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