Sydney Airport caught in global M&A boom

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The Sydney Airport board of directors – headed by new chairman David Gonski, who replaced former chairman Trevor Gerber at the company’s annual general meeting in May – is still considering the public offering of purchase and asked shareholders to take no action.

“The indicative proposal was made during a global pandemic that has profoundly affected the aviation industry and the price of Sydney airport security,” the airport said. “The indicative price is lower than the price of Sydney Airport security before the pandemic.”

The board of directors assesses whether the proposed plan of arrangement reflects the underlying value of the airport given the duration of its concession – it lasts until 2097 – and “the expected short-term impact pandemic ”.

The proposal is conditional on a unanimous recommendation from the six-member main airport board and a separate board from the Sydney Airport Trust, as well as satisfactory due diligence and regulatory approvals from the Foreign Investment Review Board and the Australian Competition and Consumer Commission.

Sydney Airport shares, which closed at $ 5.81 on Friday, were trading near $ 9 before the pandemic erupted in early 2020. Its stock climbed 34% on Monday to close at 7 , $ 78, its highest level since February 2020.

UniSuper sees “merit”

Sydney Airport’s biggest investor, UniSuper, which owns 15 percent of the capital, reacted favorably to the takeover proposal, which requires the pension fund to retain its equity stake and not sell for cash. silver.

UniSuper said it sees “merit” in converting the airport from a listed company to an unlisted company and has a favorable opinion of the consortium partners. He has not made a final decision.

The June COVID-19 outbreak in Sydney prevented domestic travelers from entering and exiting the airport. James brickwood

A move to private ownership would benefit UniSuper as Sydney Airport would be delisted, lowering costs, and he would no longer have to reduce the value of his investment when the airport’s stock plummeted, such as he did so during the pandemic.

Harry Dudley, investment analyst at Watermark Funds Management, said that while the offer seemed opportunistic, coming just after NSW reported its highest COVID-19 case count for 2021, the offer price was respectable .

“After adjusting financial data to reflect normal operating conditions, we estimate supply to be 15% higher than Sydney Airport’s pre-pandemic EV / EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] multiple, ”said Dudley.

“The discount on the offering price at which Sydney Airport shares are traded likely reflects the hurdles the consortium faces.”

“We think it would be difficult for another bidder to come forward as the parties involved here are the major players in Australian infrastructure and foreign ownership is limited to 49%.”

There is much more value in this asset than the market assigns.

– Ben Clark, portfolio manager of TMS Capital

Australia’s Airports Law requires at least 51 percent of airports to remain locally owned and operated. Other investors have said they would be disappointed to see Sydney Airport fall into private hands.

Ben Clark, portfolio manager at TMS Capital, which has owned the shares in the airport for a decade and currently has a less than 1% stake, said the takeover bid highlighted the focus at short term from some investors who sold stocks after COVID-19 broke. and most air travel has stopped.

“There is a lot more value in this asset than the market has attributed,” said Mr. Clark. “We would hate to lose it, because where are you putting that money?” There is not much to choose from if you are trading through public exchanges.

“If this [asset] disappears, it will be gone and, like virtually all other airports, retail or institutional investors will no longer be able to invest. “

Mr Clark said he would be reluctant to sell shares in the airport under the current offer.

“There doesn’t seem to be too much of a controlling premium in that price and you’re really getting less than you could get two years ago,” he said.

Only a handful of airports in the world are still listed on the stock exchange, including Auckland Airport, Frankfurt Airport in Germany, and Paris Charles de Gaulle and Orly airports.

Pandemic struggles

Sydney Airport, which derives most of its money from international travelers, struggled during the pandemic and was forced to raise $ 2 billion in equity in August 2020 at a price of $ 4.56 per share to bolster his record.

He was frustrated with the sporadic state border closures across Australia in 2020 and 2021 as they disrupted domestic aviation and made vacation planning difficult.

The airport’s international passenger count fell 93% in May compared to the same month in 2019, before the pandemic hit, while its domestic passenger count fell 39% during the same period.

Managing Director Geoff Culbert called on Australia to develop a plan to open international borders in a “secure and risk-based manner” and also to keep state borders open.

The consortium has not declared its final offer, leaving the door open to negotiations for a higher price.

If acquired by the consortium, ownership of Sydney Airport would be dominated by IFM, which will hold the asset in its Australian and global funds, and GIP. UniSuper would have a 15 percent stake and QSuper would have a 7.5 percent stake.

IFM, Global Infrastructure Management and QSuper have all already invested in airports.

IFM already has stakes in the airports of Melbourne, Brisbane, Perth, Adelaide as well as in the NT airports, which include the airports of Darwin, Alice Springs and Tennant Creek.

QSuper owns around 11% of London’s Heathrow Airport as well as stakes in Edinburgh and Brisbane airports.

GIP also owns a stake in Edinburgh Airport as well as a stake in Gatwick Airport in London.

The consortium would be pleased with the airport’s existing management team and said it does not plan to make “substantial” changes to the company’s services, operations or target credit ratings.

Analysts lowered their 12-month price targets on airport stocks after the federal government signaled national borders are unlikely to open until mid-2022.

International travelers are much more lucrative than domestic travelers for the airport because the fees charged to international passengers are much higher and they spend more money in airport shops.

Sydney Airport has not paid a final dividend for 2020 after suffering an annual loss of $ 145.6 million and does not plan to pay an interim dividend. The airport had made a profit of $ 403.9 million the previous year.

Sydney Airport is Australia’s only publicly traded airport. Most airports are already owned by infrastructure and investment funds.

Most Australian airports were privatized in the late 1990s and Sydney Airport was sold in mid-2002 to Macquarie Airports, which listed the company on the Australian Securities Exchange that same year.

The Macquarie group sold its stakes in 2013 and UniSuper is now the largest shareholder in Sydney Airport.

Sydney Airport has stapled securities, which trade as if they were a single security.


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