Sydney Airport Holdings said on Thursday it would reject a A$22.26-billion ($16.6-billion) takeover proposal from a group of infrastructure funds, the biggest of a frenzy of Australian deals fuelled by record-low interest rates.
The operator of Australia’s largest airport said directors had unanimously concluded the proposal undervalued the airport and was not in the best interest of shareholders. If successful, it would have been one of Australia’s biggest buyouts.
Record-low interest rates have prompted pension funds and their investment managers to chase higher yields, leading to recent asset purchases from Telstra Corp and Qube Holdings.
Electricity poles-and-wires company Spark Infrastructure Group rejected a A$4.91 billion buyout proposal from private equity firm KKR & Co and Ontario Teachers’ Pension Plan Board but left open the chance of some engagement.
Last week, the Sydney Aviation Alliance, a consortium of IFM Investors, QSuper and Global Infrastructure Partners offered A$8.25 a share, for a premium of 42 per cent to pandemic-ravaged Sydney Airport's last trading price before the offer.
Shares of Sydney Airport were flat at about A$7.80, a sign the market expects further negotiations.
The proposal is contingent on a board recommendation and access to due diligence. Sydney Airport said its board would only accept a buyout deal that would “deliver and recognise appropriate long-term value”.
“The board is obviously trying to play hardball, but we do think it's a pretty unique long-dated asset so we are supportive of their decision so far,” Andy Forster, a portfolio manager at Argo Investments, a top-20 investor in the airport, told Reuters.
In a statement, the Sydney Aviation Alliance said it was “surprised and disappointed” by the rejection, but did not say if it had ruled out a higher offer.
The Australian government has a foreign ownership cap of 49 per cent on airport operators. IFM, QSuper and UniSuper are Australian, while Global Infrastructure Partners is from the United States. Sydney Airport is Australia's only listed airport operator and a purchase would be a long-term bet on the travel sector.
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