IFM-backed $22.3bn consortium bid for Sydney Airport gains some investor support but likely to be rebuffed

Sydney Airport is 30 per cent-owned by industry superannuation funds. Picture: Adam Yip

An IFM-backed consortium that has lobbed a $22.3bn offer to buy Sydney Airport is calling the bottom of the market for the international travel industry, say market experts, in what can be a sign of green shoots to come.

On Monday, Sydney Airport announced it had received a proposal to acquire the airport from locally based investors IFM and QSuper and the US-based Global Infrastructure Partners at $8.25 per share.

The bid is arguably the largest buyout proposal on an enterprise value basis ever received for a public company in Australia in what is further evidence of the boom for merger and acquisitions locally amid a low interest rate environment.

Sydney Airport’s shares had earlier been trading at $5.81 before the bid was received, although they had been trading at $8.80 before the global pandemic that largely halted international travel.

They closed on Monday at $7.78, up 33.9 per cent.

While many expect the Sydney Airport board to reject the approach given the current conditions, some say it suggests that the suitors believe travel conditions can only improve from here, with the population on the path to being vaccinated.

Other offers could arise for airport assets, with suitors taking the view that earnings can only improve onwards.

There are Sydney Airport shareholders who kept buying stock amid the pandemic who are positive about the bid, given that Sydney Airport has not paid a dividend since February last year and may not offer investors a payout this year. Compared to where the shares are trading now, they believe that the offer is at an attractive premium.

But Sydney Airport is not in a perilous position – it launched a $2bn equity raising last year and, while it posted a $145.6m loss, at December it had $1.1bn of available cash and $2.4bn of undrawn debt.

It also generated $627.8m of earnings before interest, tax, depreciation and amortisation.

In normal conditions during 2019, it made a $403m net profit.

The bigger question is whether the Sydney Airport board offers the consortium due diligence to enable it to sweeten the deal should the board choose to reject it.

Working for the consortium is Goldman Sachs, while UBS and Barrenjoey Capital Partners are advising Sydney Airport and law firm Allens is providing Sydney Airport legal advice.

The offer is subject to major shareholder UniSuper, which holds about 15 per cent of Sydney Airport, rolling its interest into the bid and due diligence, which suggests it will also be involved in owning the airport if it were to be delisted.

IFM already owns 25 per cent of Melbourne Airport and 20 per cent of Brisbane Airport and will not be able to own more than 15 per cent of this asset if its other holdings remain, according to Macquarie analysts.

GIP would not be allowed to own more than 49 per cent under the airport ownership rules for foreign investors.

Sydney Airport is 30 per cent-owned by industry superannuation funds, so other major super fund investors excluding UniSuper would be against the transaction.

The offer equates to 23.3 times the group’s 2023 anticipated earnings, say Macquarie analysts.

In a research note, they said they believed the offer was not necessarily generous, with its current valuation at $6.04. They also took a view that alternative offers may be limited, with major industry funds involved in the current offer and any new bid also needing to maintain 51 per cent domestic ownership.

As earlier reported in The Australian, Sydney Airport’s passenger data for May showed numbers were down 80.2 per cent for the last 12 months, with domestic travellers down 70 per cent and international passenger numbers off by 96.2 per cent.

The airport was bought by Macquarie Bank in 2002 for $5.6bn. Macquarie eventually sold its shares in the airport back to its own shareholders, making $377m in the process.