Sydney Airport backs $23.6bn industry superannuation fund takeover offer

Sydney Airport is poised to have new owners by March next year in a near $24bn deal with some of the country’s largest industry superannuation funds.

Sydney Airport has backed the $23.6bn industry superannuation fund takeover offer. Picture: Getty Images

Sydney Airport is poised to have new owners by March next year in a near $24bn deal with some of the country’s largest industry superannuation funds.

On Monday, Australia’s biggest gateway told shareholders and the ASX it was backing an $8.75 a share offer from the Sydney Aviation Alliance consortium, ending a four-month cat and mouse game.

Industry super fund investment arm IFM, QSuper, Global Infrastructure Partners and the biggest industry fund in the country, AustralianSuper, make up the consortium.

The airport’s David Gonski-led board dismissed their first two offers of $8.25 and $8.45 a share, calling them “opportunistic” given the devastating impact of the pandemic on the airport’s revenue and the share price, which had sunk to $5.81.

In a case of third time lucky, the consortium found the sweet spot with a bid that valued the airport at $23.6bn, prompting the board to open its books for the consortium.

It came as the spread of Covid’s Delta variant took a hammer to the aviation sector’s nascent recovery, driving passenger numbers down to new lows.

In September, a mere 42,000 people passed through Sydney Airport, down from 3.6 million in the same month two years ago.

However, the deal puts the IFM consortium in line to capture a windfall in traveller spending as the sector rebounds. That anticipation of pent-up demand was apparent as local travel stocks topped sharemarket gains on Monday following encouraging results from Pfizer’s Covid-19 drug trial.

Flight Centre rose 4.7 per cent, Webjet rose 4.8 per cent and Qantas rose 4.1 per cent to $5.85.

Sydney Airport chairman David Gonski. Picture: NCA NewsWire/Bianca De Marchi

Meanwhile, if the revised Sydney Airport deal was accepted by shareholders, it would represent a $7.9bn equity uplift to the company’s closing price on the day before the initial offer was announced.

Mr Gonski recommended that Sydney Airport’s shareholders vote in favour of the deal, subject to the conclusions of an independent expert’s report and the absence of any better offer.

“Today’s announcement is the culmination of months of engagement between all parties,” he said.

“The Sydney Airport board believes the outcome reflects appropriate long-term value for the airport, and unanimously recommends the proposal to securityholders, subject to customary conditions such as independent expert approval and no superior proposal.”

Sydney Airport Alliance spokesman and IFM Investors chief executive David Neal said the consortium would work hard to kickstart activity at the airport in the post-Covid period.

“Our alliance represents many millions of Australians who, upon transaction completion, will be invested in Sydney Airport through their superannuation and we intend to work hard to bring more flights and passengers back to the airport as the aviation industry emerges from Covid-19,” said Mr Neal. “In the meantime, we will continue working closely with the airport and other relevant stakeholders to finalise the transaction.”

The steep premium on the consortium’s offer also represents the ever-expanding superannuation industry’s need to find a stable, yield-generating homes for the trillions of dollars in retirement savings it manages.

The value of all super assets grew by more than $420bn – or by almost 15 per cent – in the year to last June to $3.3 trillion.

Sydney Airport Alliance spokesman and IFM Investors chief executive David Neal. Picture: Stuart McEvoy

As well as thousands of ordinary retail shareholders, Sydney Airport’s other major owners include UniSuper. The super fund has pledged to transfer its 15.01 per cent stake in the airport for an equivalent interest in the holding structure of the new consortium.

Shareholders will be able to have their say on the proposal at the deal’s scheme meetings, expected to be held in the first quarter of 2022.

At least 75 per cent would need to say yes for the deal to go ahead, in a process the consortium hoped could be wrapped up by the end of March.

At that point the 102-year-old airport would disappear from the ASX, where its shares have traded since they listed in 2002 at $1 a piece.

Multiple regulatory hurdles also need to be overcome before the deal is finalised, including approval from the Australian Competition and Consumer Commission, the Foreign Investment Review Board, European Union merger clearance and the approval of the Supreme Court of NSW.

The ACCC is investigating the impact the sale could have on competition, in light of the consortium’s ownership of several other airports in the country, with a report due next month.

It is expected IFM Investors will need to divest some of its interests in other airports, including a 25 per cent stake in Melbourne Airport and 20 per cent in Brisbane Airport under cross-ownership laws.

“We’re very comfortable we’ll meet all of those obligations,” IFM Investors global head of infrastructure Kyle Mangini told an Infrastructure summit on Monday.

The consortium could cop a $150m “reimbursement fee” if the parties back out of the deal, while Sydney Airport could be hit with the charge if it breaches conditions regulating the transaction during the exclusivity period.

These include any of its directors failing to endorse the deal or making a public statement “withdrawing, adversely changing, adversely modifying or adversely qualifying their support” for the transaction.

In addition, Sydney Airport’s board is subject to “no shop, no talk” and notification obligations concerning any competing offer.

To that end, Sydney Airport confirmed it had ceased any negotiations on any competing proposal.

RBC Capital analyst Owen Birrell said the announcement was a positive outcome for Sydney Airport’s stock given the share price had been moderating in recent weeks. The board’s recommendation would cap the appreciation of the potential share price which was 2.8 per cent higher at $8.46 on Monday.

There was still much uncertainty surrounding the aviation industry’s recovery, with RBC not expecting a return to pre-Covid passenger movements until 2024 for domestic and 2028 for international.

S&P Global Ratings analyst Meet Vora said new owners in addition to a traffic recovery could drive up Sydney Airport’s credit ratings from BBB.

“We will continue to engage with the management and the consortium to understand their policies, including financial metrics, dividends, ratings and so on, as well as their strategy for the airport, which are vital inputs to our current ratings on the airport,” Ms Vora said.