Sydney Airport takeover bid looks ready for takeoff

Market analysts have talked up a $22bn takeover bid for Sydney Airport as the gateway faces a long road to recovery.

A takeover offer for Sydney Airport could prove hard to resist with the gateway facing many more months of financial difficulty while borders remain closed. Picture: NCA NewsWire/Joel Carrett

Expectations are growing Sydney Airport’s board will recommend shareholders accept a $22.3bn takeover offer made by a consortium of super funds and infrastructure investors.

Shares in Sydney Airport slipped slightly on Tuesday to $7.69 after Monday’s huge jump on the back of the proposal, as some analysts indicated the offer of $8.25 a share was unlikely to spark an immediate bidding war.

A series of analyst notes provided a favourable assessment of the bid, with terms such as “fair, attractive, healthy, reasonable” used to describe the Sydney Aviation Alliance offer.

Made up of IFM Investments, QSuper and Global Infrastructure Partners, the consortium is believed to have spent months preparing the proposal for Australia’s largest gateway which slumped to a $145m loss in 2020 due to a massive plunge in passengers.

“We believe the offer would have caught Sydney Airport management off guard but at first glance appears to be a fair offer and will come under serious consideration by the board,” said JP Morgan analyst Richard Jones.

“The consortium comprises credible investors who have experience owning airports and are likely well capitalised.”

Citi Research analyst Suraj Nebhani considered the bid price as “healthy and reasonable” despite Sydney Airport’s assessment it was “below the pre-Covid-19 share price”.

“We would flag that the timing of earnings recovery remains uncertain from the virus cases in NSW over the last few weeks,” Mr Nebhani said.

“This means that while travel will recover from the exceptionally low current base, revenue and earnings levels may not reach the pre-Covid-19 trajectory for a long period of time.”

Morgans analyst Nathan Lead said the bid consortium was well known in the Australian and global infrastructure space and would unlikely have a problem getting Foreign Investment Review Board approval.

He said the key question was whether another bidder could emerge, which seemed a strong possibility.

“We are aware there is significant dry powder sitting in infrastructure funds globally looking for investment opportunities,” Mr Lead wrote.

“For funds with a long-term investment horizon and low return hurdles, Sydney Airport’s current share price may look attractive on the assumption travel recovers and capital can be released from what looks like an under-geared balance sheet when earnings return.”

In the event the deal fell through, Mr Lead said the airport’s share price would likely fall back to a level similar to last Friday’s close of $5.81.

“At current prices, we assess that the market is applying a very high probability that the transaction will proceed,” he said.

Morningstar analyst Alexander Prineas also believed the takeover had “a reasonable chance of success” but was likely to be drawn out.

He said the most likely stumbling blocks were the consortium’s requirement for due diligence and unanimous support from Sydney Airport’s board.

“The likely time frame for this to play out is months,” Mr Prineas said.

“We think the consortium, Sydney Airport management and shareholders and the market will be closely watching other nations that are further ahead in the vaccine rollout for evidence of a recovery in international travel.”

Macquarie Group was of the belief alternative offers were unlikely, and warned the biggest risk for investors at this point was if the offer fell away.

“We see there are limited players to counter bid IFM’s consortium but there is scope for a bump in the offer to ensure scheme agreement and the support of UniSuper (Sydney Airport’s largest stakeholder),” said Macquarie’s note.

UniSuper has already indicated it would be in favour of Sydney Airport becoming an unlisted company, and said it held a favourable view of the consortium partners.