Sydney Airport top owner sees offer at pre-Covid level unlikely

Expectations that Sydney Airport should be valued in a deal at levels similar to those seen before the coronavirus pandemic are overly optimistic, according to its largest shareholder.

The company’s board on Thursday dismissed a A$22.3 billion ($16.6 billion) takeover bid from a group of pension funds led by IFM Investors. While the A$8.25 a share offer was pitched at a 42% premium to Sydney Airport’s share price before the offer, it was below where the stock was trading before the pandemic crushed global aviation.

Shares in Sydney Airport rose about 0.9% to A$7.88 apiece on Friday, giving it a market value of about $16 billion. The stock is still trading around 35% above where it was before the IFM Investors’ offer.

“Those that are calling for or expecting a bid to come in at A$9 might be overly optimistic,” John Pearce, chief investment officer of Unisuper, said in an interview on Friday. “Referencing anything around that number is a little bit misleading because clearly Covid’s changed a few things, not least of which was the fact there was a highly dilutive capital raising last August.”

Unisuper holds the key in any potential deal since it owns about 15.3% in Sydney Airport and is the largest shareholder, data compiled by Bloomberg shows. Last year, Sydney Airport raised about A$2 billion selling shares to help weather the coronavirus crisis.

The pension fund would be interested in increasing its ownership under any take-private beyond just rolling over its current stake if the structure was right, Pearce said.

“Whenever we’ve been offered a chance to top up, we’ve taken the chance,” he said. “We think Australian airports are fantastic assets.”

A consortium led by Macquarie Group Ltd. is exploring an offer for Sydney Airport and has been speaking with potential partners, including local pension funds, Bloomberg News reported earlier this month. It’s unclear whether the IFM Investors-led group or any other investors would come forward with new bids.

“The board of Sydney Airport have done what you’d totally expect a board to do and rejected the first offer,” Pearce said. “But that hasn’t at all changed our view on a deal and our preference that a deal gets done.”