Sydney Airport: Board meets to discuss takeover offer – prediction – rejection

The AFR is predicting the board of Sydney Airport will reject the AU$30 billion takeover bid from IFM Investors, and other investors. The offer is values the companies shares at AU$8.25 each, compared to the stock market which is currently trading the shares around AU$7.95 this morning.

The offer values the company at 26.3 times 2019 reported earnings (2020 being a weird COVID-19 affected year). As a comparison, Hobart Airport was sold to private equity at a valuation of 28 times earnings.

Gonski conflict?

There has been some question over whether there is a perceived conflict of interest as David Gonski, chair of Sydney Airport, also has a role at one of the board’s advisors on the bid, Barrenjoey. UBS is the other advisor.

The board is expected to reject the offer arguing that Sydney Airport is currently undervalued due to COVID-19 flight restrictions.

Regulatory approval

Sydney Airport is the only major capital city airport still in shareholder hands. All the others are owned by private equity. This may impact regulatory approval for the deal as IMF members also have substantial stakes in both Melbourne and Brisbane airports.

‘Under Australia’s Airports Act, no one investor can own more than 15 per cent of two major Australian airports (Sydney and Perth, Sydney and Brisbane, or Sydney and Melbourne), in a bid to try to stop airport owners ripping off airlines and/or their passengers.’

AFR

At the moment, the bidder IFM, through its IFM Australian Infrastructure Fund holds 20 per cent of Brisbane Airport Corporation and 25.2 per cent of Australia Pacific Airport Corporation, the owners of Melbourne Airport.

2PAXfly Takeout

This is another timely reminder to wear your seatbelt when seated. Holding you close to your seat will protect you from the sort of injuries sustained on this flight, when unsecured passengers flew to the ceiling of the aircraft, and then came crashing down once the ‘drop’ ceased.

The hope will be that this is an anomaly – a ‘freak accident’ in casual parlance. If it is a systemic error either mechanical or electronic, then this is a larger concern for the airlines that fly Boeing Dreamliner 787 aircraft. Let’s hope it isn’t. If it is, it will pile on the woes to Boeing’s existing stack.

The financial press is full of predictions that private capital is analysing its butt off, trying to assess distressed assets available because of COVID-19 for potential takeover. If that’s true, this will not be the first takeover offer for this asset, or for other travel asset.

Anyone want to bid on Qantas?

For the record, I have an indirect interest in Sydney Airport shares.