Sydney Airport is finally nearing a deal to sell the airport to a consortium of super funds, with the latest takeover bid coming in at $23.6 billion.
Should the deal proceed, it will mark one of the largest corporate takeovers in Australian history.
The Sydney Aviation Alliance Group – a consortium of industry investors that includes IFM Investors, QSuper, Global Infrastructure Partners and AustralianSuper – in July proposed a $22 billion takeover bid to the airport’s operators, which the board quickly rejected and dubbed “opportunistic”.
The consortium then last month raised its bid up to $22.8 billion, which was again swiftly rejected, causing the super funds to threaten to leave the negotiation table altogether.
Now the two parties are gearing up to secure a deal, which equates to $8.75 per share.
Sydney Airport has offered a four-week non-exclusive period of due diligence, opening up its books to allow the consortium to later make a binding proposal.
The airport’s board said that should the bid still stand as is after the due diligence period, the board intends to “unanimously recommend” that securityholders vote in favour of the proposal.
A final deal could take months to complete, and would require approval from at least 75 per cent of shareholders, the completion of a report by an independent expert, and approval from the ACCC and Foreign Investment Review Board.
While the current deal is non-exclusive, meaning the airport could accept a higher rival bid, the airport is required to remain at least 51 per cent Australian owned, which means finding another appropriate bidder with the necessary funding would be difficult, according to analysts.
Following the announcement, at midday on Monday, Sydney Airport’s share price rose to $8.38, giving it a market value of $21.58 billion. However, the airport’s pre-pandemic value soared above $9 per share.
The news comes after Sydney Airport reported a $97.4 million half-year loss in the six months to 30 June 2021.
The airport cited the impact of COVID-19 and the sudden shutdown of domestic borders through the second half of the reporting period, as it saw a 33 per cent drop in revenue compared with the same period last year, which was also heavily impacted by COVID.
The airport brought in $341 million in revenue between January and June 2021, down by 60 per cent from its June-December 2020 results, which notably benefited from eased border restrictions throughout that period.
While passenger traffic rebounded to 65 per cent of pre-COVID figures between January and April this year, the current Delta outbreak in Sydney, which has resulted in lockdowns and border closures across multiple states, saw traffic fall to just 3 per cent of 2019 levels in July.
Over the negotiation period, the airport’s board has long held its belief that the airport is “strongly positioned” given Australia’s “rapid increase and acceleration” of its vaccination rollout, which is likely to see conditions improve and the re-opening of borders.
“The boards recognise that the security price is likely to trade below the consortium proposal’s indicative price in the short term, however, Sydney Airport will only progress a change in control transaction on terms that deliver and recognise appropriate long-term value for Sydney Airport securityholders,” said the business at that time.
“The boards and management will continue to operate the airport with the objective of maximising long-term securityholder value.”
Despite the board’s view, the consortium threatened to walk away from negotiations if Sydney Airport refused to engage.
“Given Sydney Airport’s lack of engagement and immediate rejection of the revised proposal … it appears unlikely that the parties can agree a path forward and, as such, there is no assurance the revised proposal will proceed,” the group said in a strongly-worded statement.
The consortium noted it was “surprised and disappointed” by the immediate rejection of its first bid, as well as the board’s “absence of engagement” in negotiations.
“At a time when Sydney Airport is facing short, medium and long-term challenges, the consortium believes the original proposal offered full value to Sydney Airport securityholders,” it said.
The group noted that it increased its bid despite deteriorating domestic aviation outlooks as the entire state of NSW entered lockdown, and Melbourne’s lockdown gets extended.
It again accused the airport of failing to engage in meaningful negotiations, and stated both its previous offers were already at a premium.
“Whilst noting the limited relevance of pre-pandemic price comparisons, the revised proposal represents an offer value equivalent of A$9.21 per stapled security when the offer enterprise value is adjusted for the impact of the 439m securities issued and A$1,980 million net cash proceeds raised in the August 2020 equity raising,” the group said.
“This is above the highest price at which Sydney Airport’s securities have ever closed.”
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