A deal has finally been struck for Australia's largest aviation asset.
Zach works as an equities analyst at a mid-sized investment boutique. As such, he has a unique approach to allocating capital, taking a top-down approach to identifying unique value propositions that sit within his circle of competence. He holds a Master's in Finance and is currently pursuing the CAIA I & II designations.
Published November 8, 2021 9:44 am AEDT
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A consortium of investors led by IFM Investors and Global Infrastructure Partners will take the reigns of Sydney Airport (ASX: SYD) after the trio agreed to a deal over the weekend.
After a period of due diligence, Sydney Airport's board has unanimously agreed to advance with the deal.
The transaction values Sydney Airport securities at $8.75 per share. This is equal to the final offer the consortium made earlier this year.
After the company's share price finished in the green at $8.23 last week, this represents a 6% premium before the open today.
Here is what we know so far.
Under the scheme of arrangement, Sydney Airport shareholders will receive a number of considerations, including the $8.75 in cash per stapled share.
UniSuper Limited is also expected to transfer its existing interest of 15.01% "for an equivalent interest in the holding structure of the consortium."
Sydney Airport's board has unanimously recommended its shareholders vote in favour of the scheme. Shareholders will have their chance to vote at an upcoming scheme meeting planned for Q1 2022.
The consortium, which calls itself the Sydney Aviation Alliance, originally put in offers of $8.25 and then $8.45 per share respectively. Sydney Airport's board declined both of these offers.
As such, the revised offer values Sydney Airport's equity at $23.6 billion with the $8.75 per share bid.
This equates to an enterprise value of almost $32 billion on the company when including its debt and preferred equity, then stripping out its cash.
Hence, the deal also represents an approximate $2 billion or 6.7% premium to Sydney Airport's current enterprise value of $30 billion.
But it's not going to be all smooth sailing from here, especially for the consortium buying Australia's largest airport.
Under the legislature, no single investor can own more than 15% of any two major Australian airports. That includes Sydney, Melbourne, Perth and Brisbane.
The rules are in place to protect consumers and prevent airport owners from price gouging and manipulating the price function of airline tickets.
But IFM – one party leading the Sydney Aviation Alliance consortium – already owns significant stakes in Melbourne and Brisbane's airports, and has done for many years.
For instance, it owns a 25% stake in the Melbourne airport and is a 20% owner of the Brisbane airport. Under the legislature, it can only own a 15% stake in its newly-acquired asset.
As such, IFM has some prudent portfolio management decisions to make, but may also argue its other airport interests should be classified differently due to the new consortium structure.
The scheme is still yet to be approved by shareholders, who will vote in the first quarter of 2022 at the planned scheme meetings.
The resolutions must be approved by at least 75% of the vote cast by shareholders, per the company.
The deal is also subject to a number of conditions and still must pass a fair bit of scrutiny before finalisation.
For instance, it still requires approval from Australia's Foreign Investment Review Board (FIRB) and must seek approval from the Australian Competition and Consumer Commission (ACCC).
As for now, it appears the wheels are set in motion for the deal to go ahead, pending the full approval of Sydney Airport's shareholders.
For the record, this deal represents the largest ever cash bid for a publicly listed company in Australia, should it all go ahead according to plan.
At the minute, Sydney Airport shareholders have been instructed to take no action until the upcoming meetings.
The deal represents an almost $8 billion hike from the original offer laid down by the Sydney Aviation Alliance.
The Sydney Airport share price is expected to open at $8.23 today. It has climbed 39% in the last 12 months after rallying 28% this year to date.
Both of these results are ahead of the S&P/ASX 200 Index (ASX: XJO)'s 20% climb in the last year.
The author Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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