Sydney Airport’s board has agreed to sell the airport to a consortium of super funds in a $23.6 billion deal – making it one of the largest corporate takeovers in Australian history.
The board announced its decision to the ASX on Monday, along with its unanimous recommendation for investors to accept the bid, which would see shareholders pocket $8.75 per share.
It comes at the conclusion of a four-week non-exclusive period of due diligence, in which Sydney Airport opened up its books to allow the consortium to later make a binding proposal.
The deal is expected to be finalised in the new year and will need approval from at least 75 per cent of shareholders to proceed.
The sale will also be subject to regulatory approvals, including by the Foreign Investment Review Board and the Australian Competition and Consumer Commission.
The board’s decision comes after two previously rejected bids of $8.25 and $8.45 put forward by the consortium, dubbed the Sydney Aviation Alliance Group (SAA).
Led by IFM Investors, along with QSuper, Global Infrastructure Partners, and most recently, AustralianSuper, the consortium has been eyeing to secure a sale of the airport since July.
In July, SAA proposed a $22 billion takeover bid to the airport’s operators, which the board quickly rejected and dubbed “opportunistic”.
The consortium then in August 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. However, SAA ultimately came back with a final offer of $23.6 billion, equating to $8.75 per share.
As of midday on Monday, Sydney Airport’s share price rose to $8.46 per share, giving it a market price of $22.2 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 reopening 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 [they] 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.”