Sydney Airport shareholders and analysts believe the latest $23.6bn buyout proposal from an IFM-led consortium is reasonable.
The understanding is that shareholders on Monday were largely in support of the bid and some have indicated that they will accept the proposal should it proceed.
Sydney Airport confirmed on Monday that the Sydney Aviation Alliance consisting of IFM, QSuper, GIP and AustralianSuper, has put forward an offer of $8.75 a share for the airport and has been granted due diligence.
The board indicated that it would accept the offer.
Yet the bidders still have some way to go to gain control of what is arguably the most prized aviation asset in the country, where they need to clear the regulatory hurdles which includes approval from the Foreign Investment Review Board.
A question some are asking is what group would be the buyer in the future for the airport lease, which has between 60 and 80 years to run, once the consortium opts to exit its investment?
A foreign investor can only own less than half of the airport and major Australian funds capable of paying the price have investments in other airport assets already, and for regulatory reasons in many cases they are unable to own more.
Some believe for the IFM consortium, the deal is a big bet on the airport’s future.
New owners will be straddled with high capital spending requirements for various parts of the airport such as terminals and runways and after operating as a monopoly, Sydney Airport will soon face competition from the new Western Sydney Airport to be constructed at Badgerys Creek.
After crunching the numbers, analysts believed the deal looked adequate and was in line with prices paid for other international airport assets.
The price being paid for Sydney Airport equates to a 4.7 per cent yield using the dividend for the 2019 calendar year, with a yield of 4.5 to 5 per cent considered reasonable for an airport asset.
Sydney Airport was yielding 4.3 per cent in December 2019 when the share price almost hit $9, but there are now more shares on issue now following a $2bn equity raising last year.
Analysts at Jefferies say that the offer is 26 per cent above its valuation of the airport.
It represents a valuation including debt of 24.3 times $1.28bn of earnings before interest, tax, depreciation and amortisation forecast for 2023.
In December 2019, when the share price was trading at all-time highs, it was trading at 21.6 times its forecast Ebitda.
Over the next 12 months, Jarden analysts expect Sydney Airport’s share price to return to about $8.50 per share as international travel resumes.
The airport’s internal rate of return on average is 6.1 per cent.
The latest Sydney Airport bid comes after the consortium – originally excluding AustralianSuper - initially offered $8.25 per share, valuing the airport company at $22.3bn before revising its offer to $8.45 in recent weeks and bringing AustralianSuper in on the deal.
The first two proposals were rejected at a time that the consortium was seen to be capitalising on the airport’s weakness linked to the global pandemic.
Sydney Airport’s shares had earlier been trading at $5.81 before the first bid was received, although they had been trading at $8.80 before the global pandemic that largely halted international travel. They closed at $8 on on Friday.
Its shares were up 4.6 per cent to $8.37 on the ASX on Monday afternoon.
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