Sale of Sydney Airport offers ‘certainty’ for shareholders: proxies

Shareholders have been warned they could lose money on their investment if they don’t back the sale of Australia’s largest gateway.

Sydney Airport’s domestic terminal. The gateway is set to change hands in 2022. Picture: NCA NewsWire /Flavio Brancaleone

Sydney Airport shareholders have been warned they could lose money on their investment if they vote against an offer of $8.75 a share for Australia’s largest gateway.

A consortium known as the Sydney Aviation Alliance made up of IFM, AustralianSuper, QSuper and Global Infrastructure Partners made the $23.6bn offer, in what would be one of the biggest buyouts ever in Australia.

The Australian Competition and Consumer Commission and Foreign Investment Review Board have both green lit the deal leaving shareholders’ approval as the final barrier to the sale.

At least 75 per cent must vote in favour for the sale to go ahead, at a meeting scheduled for February 3.

Several proxy adviser reports recommended shareholders vote “yes” to the offer, saying the price was well above the company’s recent trading price, and no superior bids had emerged.

Institutional Shareholder Services (ISS) said the offer represented certainty of value with shares in Sydney Airport likely to fall if the deal did not go through.

The ISS report cited risks posed by the ongoing impact of Covid-19, Western Sydney Airport competition, airline relationships, commercial revenues and geopolitical matters, such as the potential loss of Chinese visitors in the years ahead, affecting international passenger numbers.

It also noted the airport’s net debt in the 2021 financial year was $8bn, and “with interest rates likely to increase in the future, there is the 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,” said the report.

Under the deal, senior airport executives including CEO Geoff Culbert, would have 100 per cent of unvested performance rights cashed out to the value of $17 million, representing a tidy windfall.

Mr Culbert stood to pocket $7.85 million, chief commercial officer Vanessa Orth $3.99 million, chief financial officer Greg Botham $3.45 million and chief aviation officer Dhruv Gupta $1.57 million.

The Australian Shareholders Association (ASA) and Ownership Matters governance advisers also advised in favour of accepting the Sydney Aviation Alliance offer.

The ASA report said the bid was “fair and reasonable given the strategic nature of Sydney Airport, its historical growth prior to Covid-19 and the potential it had for further development”.

“The bid is a significant premium to the recent share price prior to the offer,” said the ASA report.

“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.”

Reasons to vote against the offer included the “opportunity for a superior bid at some point”, but the ASA noted it would vote undirected proxies in favour of the sale.

Ownership Matters took a similar position, pointing out that the Sydney Airport board had rejected two proposals from the Sydney Aviation Alliance before accepting the third, which saw the price increase from $8.25 a share to $8.75.

Independent expert Kroll Australia also assessed the offer to be at the top of the valuation range, and stressed the unpredictable nature of future projections for the airport in the current Covid-19 environment.

In the six months to June 30, 2021, Sydney Airport reported a loss of $97.4 million after significant falls in aeronautical revenue due to the historically low passenger numbers.

The most recent data released by the airport showed passenger numbers in the first 15-days of December remained at barely a quarter of pre-Covid levels despite an easing of border restrictions.

Domestic travellers were down by 69 per cent on 2019 figures, and international passengers 86 per cent lower than pre-Covid numbers.

Widespread outbreaks of the Omicron variant were expected to continue to dampen demand for air travel into 2022 with Qantas and Virgin Australia slashing domestic capacity.

Sydney Airport also faced a struggle to regain the business of international carriers, with the number of airlines operating to Australia plunging from 63 to 42 since March 2020.

Originally published as Sale of Sydney Airport offers ‘certainty’ for shareholders: proxies