Sydney Airport smiles on third bid from investor consortium

Sydney Airport announced Monday that it had received an enhanced non-binding offer from a consortium of superannuation funds and infrastructure managers for A$8.75 ($6.43) per share, or A$23.6 billion, and said it would accept a binding offer for that amount.

The latest bid from the Sydney Aviation Alliance — a consortium composed of Sydney-based IFM Investors, New York-based Global Infrastructure Partners, QSuper, a Brisbane-based super fund with A$93 billion in retirement assets, and Melbourne-based AustralianSuper, with A$225 billion — was up 6.1% from the consortium’s initial offer in early July of A$8.25 and 3.6% higher than its bid of A$8.45 in mid-August.

Sydney Airport’s board rejected the July and August offers as not reflecting the long-term value of its infrastructure assets.

The board did so even as COVID-19’s fallout on global travel caused Sydney Airport’s shares, listed on the Australian stock exchange, to lose as much as half their value from the historic highs above A$9.10 reached at the start of 2020 before the pandemic began forcing countries around the world to lock down their economies.

This time, Sydney Airport said the company intended to “grant the consortium the opportunity to conduct due diligence on a non-exclusive basis to enable it to put forward a binding proposal,” for a period expected to take four weeks from the entry into a non-disclosure agreement.

Should a binding offer of A$8.75 cash per share result, with acceptable conditions in areas such as the time frame for implementation, the current intention of the board “is to unanimously recommend that securityholders vote in favor of the proposal,” the news release said.

John Pearce, the CIO of Melbourne-based A$100 billion UniSuper, Sydney Airport’s biggest shareholder with a stake of more than 15%, welcomed the news, saying in a statement that A$8.75 “represents a very full valuation for the airport, particularly given the uncertain medium-term outlook for international travel.”

The consortium’s acquisition plan calls for UniSuper to reinvest its stake in the company.

Mr. Pearce, in his statement, said UniSuper has “a favorable opinion of the consortium partners and sees merit in owning Sydney Airport in an unlisted form.” He went on to say “we look forward” to reviewing the full details of the proposal before making a final decision on “rolling-in our shareholding.”

The consortium’s first bid lifted Sydney Airport’s stock price to a A$7.78 close on July 5, up sharply from the previous session’s close of A$5.81. On Monday, news of Sydney Airport’s willingness to accept the consortium’s third offer lifted the stock price to A$8.37, up 4.6% from its previous close.

At A$8.75 per share, the company’s stock price would be just short of its historical highs — a data point that could suggest investors don’t expect permanent damage to the long-term prospects of airports globally.

Or, said Frederic Blanc-Brude, CEO of Singapore-based EDHECinfra affiliate Scientific Infra, if the pandemic and looming climate change-related regulation do depress future air traffic, that could favor “major nodes in the system” like Sydney Airport at the expense of smaller hubs, justifying higher valuations for those large airports.