Sydney Airport (ASX: SYD) has rejected a $22.8 billion increased acquisition offer from a consortium of institutional investors led by IFM Investors.
The revised bid, announced to the ASX on 16 August, lifted the indicative offer 20 cents a stapled security, from $8.25 to $8.45 cash.
Sydney Airport said the bid was otherwise the same as the offer that its boards had unanimously rejected on 15 July. The company said the boards would be open to engaging with the consortium if it would lift its indicative price to “appropriately recognise long-term value for Sydney Airport securityholders”.
The consortium, Sydney Aviation Alliance, responded the same day claiming its initial bid had offered full value to shareholders. It said it had made the revised offer “in an effort to finalise a path forward” but it appeared unlikely that the parties could agree on this.
The consortium’s statement argued that trading conditions for Sydney Airport had only worsened since the initial bid and that, taking into consideration additional securities issued in August last year, its offer was above the highest price at which the company’s securities had ever closed.
The consortium has grown from the earlier bid with the addition of AustralianSuper to IFM’s Australian and global infrastructure funds, QSuper and US-based Global Infrastructure Partners.
Sydney Airport said its boards had carefully considered the revised indicative proposal including obtaining advice from financial and legal advisers. The boards had unanimously concluded that the revised proposal continued to undervalue the business and was not in the best interests of security holders.
The current environment had not changed the boards’ view of the airport’s long-term value.
“The boards also note that the rapid increase and acceleration in Australian vaccination rates in recent weeks and the governments’ plans to progressively ease restrictions as the population reaches vaccination targets which will then see the re-opening of travel,” the announcement said.
“Sydney Airport remains strongly positioned, has strengthened its balance sheet and tightly managed costs to maintain flexibility to a range of recovery scenarios and to pursue sensible growth opportunities as the recovery unfolds. At the current indicative price of $8.45 per stapled security, the boards continue to view the revised indicative proposal as opportunistic in light of the COVID-19 pandemic.”
Sydney Airport reiterated that in rejecting the revised bid the boards had taken into account:
- The strategic and irreplaceable nature of Sydney Airport which is a world class airport and one of Australia’s most important infrastructure assets. Sydney Airport is Australia’s largest airport and is the gateway to international travel in and out of Australia.
- Sydney Airport is a well-managed and capitalised asset.
- Sydney Airport’s consistent delivery of value to securityholders with a total shareholder return of 19% (annualised) from financial year 2015-2019 and total passenger growth of 2.9% (combined aggregate growth rate) over the same period.
- The diversity of Sydney Airport’s earnings, with the core aeronautical business supported by a high yield retail offering as well as property, car parking and ground transport venues.
- The significant value of Sydney Airport’s land assets and potential to create additional value through further development of on-airport commercial property opportunities.”
Conditions of the offer include that superannuation fund UniSuper, which holds about a 15% stake in Sydney Airport, would reinvest its interest for an equivalent equity interest in the consortium’s holding vehicle rather than receiving cash.
The offer proposes that the acquisition be completed by way of a scheme of arrangement and trust scheme.
Responding to Sydney Airport’s rejection of its offer, Sydney Aviation Alliance said: “The consortium firmly believes that the revised proposal offers full value to Sydney Airport security holders and is extremely disappointed that the board has once more failed to engage with the consortium and rejected the revised proposal.”
The revised proposal value was $7.3 billion above Sydney Airport’s equity value prior to the original proposal and represented 47% premium to the pre-offer ASX closing price of $5.75. That premium was higher than all other large Australian transactions announced this year.
The consortium believed that any assessment of Sydney Airport security prices before the pandemic was of little relevance given the company’s materially changed circumstances and the weakened short and longer-term aviation outlook, including potentially significant reductions in demand arising from the pandemic and the introduction of a competitor airport in western Sydney in 2026.
Accordingly, in the absence of the consortium’s original proposal, Sydney Airport’s security price would likely be trading materially below the $5.75 closing price immediately before the consortium’s original proposal was announced.
The consortium said: “Whilst noting the limited relevance of pre-pandemic price comparisons, the revised proposal represents an offer value equivalent of $9.21 per stapled security when the offer enterprise value is adjusted for the impact of the 439 million securities issued and $1.98 billion net cash proceeds raised in the August 2020 equity raising. This is above the highest price at which Sydney Airport’s securities have ever closed.”
Shares in Sydney Airport reached a record high of $8.86 in January 2020 before COVID-19 affected international travel.
Sydney Airport is receiving financial advice from Barrenjoey Capital and UBS and legal advice from Allens.