Sydney Airport signs $17.5bn buyout deal with pension funds

Sydney Airport’s board has agreed to takeover from a consortium led by Melbourne-based IFM Investors for A$23.6 billion (US$17.5 billion), as part of one of Australia’s largest-ever deals as pension funds and asset managers continue their sweep of the country’s infrastructure. .

The consortium, known as the Sydney Aviation Alliance, offered the airport A$8.75 a share, a 6.3% premium to Friday’s closing price.

The deal came as travel resumes in Australia after more than a year and a half of tough restrictions that have essentially closed the country’s borders. It also followed months of negotiations after the airport rejected an initial $17 billion offer in July, citing expectations of a rebound as lockdowns were eased.

David Gonski, chairman of Sydney Airport, hailed the deal as “the culmination of months of commitment between all parties” in a filing Monday with the Australian Securities Exchange, adding that the new offer “reflects the appropriate long-term value for the airport”.

The final takeover will be subject to a shareholder vote, which is expected in the first quarter of next year.

The deal marked the latest in a series of games by global investors for Australian infrastructure assets. Canadian asset manager Brookfield last week increased its offer for energy utility AusNet to A$10.2 billion, while Spark Infrastructure’s board accepted a takeover offer of 5, A$2 billion in August from a consortium led by private equity group KKR.

The consortium’s initial offer of A$8.25 per share was followed by a sweetened offer of A$8.45 in August. The current, higher offer was made in September, when the airport agreed to a four-week period for due diligence.

Sydney Airport said the new offer represented a premium of A$1.3 billion when first approached in July.

Nathan Lead, senior research analyst at Morgans, said pension and superannuation funds have increased allocations to Australian infrastructure as they target assets that have been hit hard by the coronavirus pandemic but are expected to recover to long term.

“There is a lot of capital looking for investment opportunities. [But] there aren’t a lot of high-quality infrastructure assets available,” he said.

Sydney Airport recorded losses after income tax expense of $107.5 million in fiscal 2020, compared to $215 million the previous year, as passenger traffic fell 75% over a year and revenues of 51%.

Lead added that the airport’s shares had traded at nearly A$9 a share before the pandemic, but had fallen below $5 a share since it hit.

Saul Eslake, an independent economist and fellow at the University of Tasmania, said the spending spree had been underpinned by the “substantial” capital held by Australia’s pension funds, which he said at more than $3 billion. Australians, amounted to third. or fourth in the world, behind the United States, the United Kingdom and the Netherlands.

Eslake noted that Australia’s population growth, which has been fueled by immigration and stood at around 1.5% in 2019 before the pandemic closed the country’s borders in March last year, exceeded the OECD average by 0.6%.

With all Australian employers contributing 10% of pension wages, the funds had plenty of capital to spend, he said.

Shares of Sydney Airport closed up 2.8% on Monday. The stock is up more than 40% since the initial tender offer in July.

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