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Sydney Airport shareholders urged to green-light $23.6b takeover

written by Hannah Dowling | January 19, 2022

Qantas 737s parked at Sydney Airport, as shot by Victor Pody
Qantas 737s parked at Sydney Airport, as shot by Victor Pody.

A number of proxy firms have advised Sydney Airport shareholders to vote in favour of a $23.6 billion takeover bid ahead of the 3 February vote, despite a number of retail shareholders opposing the sale.

Institutional Shareholder Services (ISS), Ownership Matters, the Australian Council of Superannuation Investors and the Australian Shareholders Association have all recommended that Sydney Airport investors vote to accept the offer – which equates to $8.75 per share – given that the offer provides certainty of value, is above recent trading prices on Sydney Airport stock, and that no superior bids have come through.

In November, Sydney Airport’s board agreed to sell the airport to a consortium of super funds – led by IFM Investors, US-based Global Infrastructure partners, along with QSuper and AustralianSuper – for $23.6 billion, making it one of the largest corporate takeovers in Australian history.

The consortium, dubbed the Sydney Aviation Alliance Group, had been eyeing to secure a sale of the airport since July last year and finally secured a deal with the board following two previously rejected bids.

After receiving the green light from both the Australian Competition and Consumer Commission and the Foreign Investment Review Board late last year, the board now needs to get at least 75 per cent of shareholders to vote in favour of the sale, in the final hurdle before the deal can be finalised.

ISS and Ownership Matters both advised that the consortium’s offer provides certainty of value, given that the price-per-share is higher than Sydney Airport shares were trading when the first bid was made in mid-2021, and given that the airport’s share price would likely fall should the deal fall through.

The ISS report also noted that the impact of COVID-19, the introduction of Western Sydney Airport as a competitor and geopolitical tensions with China, could all impact passenger traffic in the future.

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Further, with the airport’s net debt sitting at $8 billion in the 2021 financial year, and “with interest rates likely to increase in the future”, ISS stated that “there is a risk of an increased debt charge per annum, impacting risks and valuation”.

“Given the substantial premium of the all-cash consideration for securityholders, which provides certainty of value for investors, and in the absence of a superior offer, support for the proposal is warranted,” ISS said.

Meanwhile, the Australian Shareholders’ Association said it would vote any undirected proxies in favour of the takeover, calling the bid “fair and reasonable” and a “significant premium” to recent share prices.

However, the association did encourage shareholders to assess their individual situation before making their vote.

“The certainty of a cash price de-risks the uncertainty around COVID-19 and the changing environment of airports and the increased level of risk attached to these shares,” the ASA said.

“On the other hand, there are reasons to vote against the offer, and shareholders have an opportunity to vote in their own best interests and are encouraged to do so.

“The tax implications may not be in your best interests, you may be happy with a longer-term view and believe that this investment fits with your portfolio and investment strategy, or you may believe there is an opportunity for a superior bid at some point.”

Notably, in a possible blow for the final sale, a number of retail shareholders have publicly declared in recent months that they will not be supporting the Sydney Airport board’s decision to sell the airport to the consortium.

The view of retail shareholders could make or break the final sale, given that they represent 93 per cent of the airport’s 128,567 registered security holders.

Speaking with The Australian Financial Review, Kevin Murphy, director of asset management and investor relations at consulting group Horwath HTL Australia and a private shareholder of Sydney Airport, said he would not vote in favour of the takeover, arguing that the move ignores the growth potential for Sydney Airport in the coming months and years.

Murphy stated the airport will be placed “into the hands of those ready opportunists who will see the value that many of us invested in and for”.

“We believe there remains a very strong and profitable future for Sydney Airport that will not disappear just because Badgerys Creek (Western Sydney Airport) might finally allow further expansion and a strong regrowth in both ‘local aviation hubs’ in any Australian-owned future.”

Meanwhile, Ian Robilliard, who, together with his wife, owns more than 14,000 shares in Sydney Airport, said he is “absolutely disgusted” with the board’s decision to sell the airport in light of short-term COVID-related problems.

“We are absolutely disgusted by the board’s narrow view of a monopoly (if not oligopoly) business and their absolute failure to consider the long-term position,” Robilliard said.

“Sydney Airport will move back to a smooth operation with excellent returns for the long-term investor.”

A small retail shareholder and ex-airline executive, Allan Williams, also told the AFR that he would be voting against the takeover, arguing there is “ample room” for two airports in Sydney, and that shouldn’t have been a consideration in the sale.

“The COVID-19-driven downturn in flying is but a blip, albeit a major one, in the 100-plus years of commercial aviation,” he said. “[But] travel will quickly rebound, and the value of Sydney Airport will soar – clearly the consortium thinks so.”

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