The Sydney Aviation Alliance, an Australian-led consortium that now consists of the IFM Australian Infrastructure Fund, AustralianSuper, QSuper, the IFM Global Infrastructure Fund and Global Infrastructure Partners (collectively, the “Consortium”), notes the announcement by Sydney Airport rejecting the revised non-binding indicative proposal to acquire all of the stapled securities in Sydney Airport Limited and Sydney Airport Trust 1 (together “Sydney Airport” or the “Company”) for A$8.45 cash per stapled security (the “Revised Proposal”).
The Consortium was surprised and disappointed with the immediate rejection of the Consortium’s attractively priced original proposal of A$8.25 per stapled security dated 2 July 2021 (“Original Proposal”) and the subsequent absence of engagement from the Sydney Airport Boards.
At a time when Sydney Airport is facing short, medium and long term challenges, the Consortium believes the Original Proposal offered full value to Sydney Airport securityholders.
Despite the further deterioration in outlook domestically and globally since that Original Proposal, after careful deliberation, and in an effort to finalise a path forward, the Consortium increased its offer price to A$8.45 per security.
The Revised Proposal was submitted to Sydney Airport last Friday evening 13 August. The Consortium has also sought, and continues to seek, to engage in discussions with the Board of Sydney Airport with a view to obtaining its support and recommendation for the Revised Proposal.
The Consortium firmly believes that the Revised Proposal offers full value to Sydney Airport securityholders and is extremely disappointed that the Board has once more failed to engage with the Consortium and rejected the Revised Proposal.
The Revised Proposal values Sydney Airport’s equity at A$22.8bn which is A$7.3bn[2] above Sydney Airport’s equity value prior to the Original Proposal. It represents a significant premium to market prices prior to the Original Proposal, including a premium of:
· 47% to the pre-offer closing price of A$5.75;
· 41% to the 1 month VWAP of A$5.98;
· 42% to the 3 month VWAP of A$5.97;
· 42% to the 6 month VWAP of A$5.97;and
· 85% to the price of Sydney Airport’s A$2 billion equity raise in August 2020 of A$4.56
The 47% premium offered by the Consortium is higher than all other large Australian transactions announced this year.
The Consortium believes any assessment of Sydney Airport security prices before the pandemic is of limited relevance given Sydney Airport’s materially changed circumstances and the weakened short and longer term aviation outlook. This includes potentially significant reductions to demand arising from the pandemic, the introduction of a competitor airport in western Sydney in 2026 and expected long term changes in business and consumer travel preferences.
Since the Original Proposal, all of New South Wales has gone into lockdown, Greater Sydney’s lockdown has been significantly extended, and other states and territories are facing lockdowns of uncertain duration. Qantas, Jetstar, Virgin and REX have also announced they are standing down more than 4,000 airline workers and the global environment has deteriorated materially. Qantas’ share price is down 6% and the share prices of international airport peers are down on average 8% over this period.
Accordingly, in the absence of the Consortium’s Original Proposal, Sydney Airport’s security price would likely be trading materially below the A$5.75 closing price immediately before the Consortium’s Original Proposal was announced.
In contrast to the highly uncertain aviation outlook, the Consortium’s Revised Proposal continues to involve 100 per cent cash consideration[10] and certainty of value.
Whilst noting the limited relevance of pre-pandemic price comparisons, the Revised Proposal represents an offer value equivalent of A$9.21 per stapled security when the offer enterprise value is adjusted for the impact of the 439m securities issued and A$1,980 million net cash proceeds raised in the August 2020 equity raising. This is above the highest price at which Sydney Airport’s securities have ever closed.[11] See Appendix A for details regarding this calculation.
Since the Original Proposal, AustralianSuper has joined the Consortium. This further reinforces the substantial ongoing Australian ownership of this nationally significant infrastructure asset, with the Consortium investing, directly or indirectly, on behalf of more than six million superannuation fund members.
The Revised Proposal is subject to the same conditions as the Original Proposal.
Completion of any transaction would be subject to, among other conditions, certain regulatory approvals, including Foreign Investment Review Board approval and Australian Competition and Consumer Commission approval.
The Consortium firmly believes that the Revised Proposal, if implemented, would deliver significant value and economic certainty to Sydney Airport securityholders and is in the long-term interest of Sydney and the travelling public.
Given Sydney Airport’s lack of engagement and immediate rejection of the Revised Proposal (and the view that it is opportunistic), it appears unlikely that the parties can agree a path forward and, as such, there is no assurance the Revised Proposal will proceed.
