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Sydney Airport agrees $17.5bn takeover deal with pension funds

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

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

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

David Gonski, Sydney Airport’s chair, hailed the agreement as “the culmination of months of engagement between all parties” in a filing to the Australian Securities Exchange on Monday, adding that the new bid “reflects 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 plays by global investors for Australian infrastructure assets. Canadian asset manager Brookfield last week increased its offer for energy utility AusNet to A$10.2bn, while the board of Spark Infrastructure accepted a A$5.2bn buyout bid in August from a consortium led by private equity group KKR.

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

Sydney Airport said the new offer represented a A$1.3bn premium on the first approach in July.

Nathan Lead, senior research analyst at Morgans, said pension and superannuation funds had been increasing allocations towards Australian infrastructure as they targeted assets that had taken a significant hit from the coronavirus pandemic but were expected to recover in the long term.

“There’s a lot of capital out there looking for investment opportunities. [But] there’s not all that many high-quality infrastructure assets available,” he said.

Sydney Airport made losses after income tax expenses of US$107.5m in the 2020 financial year, down from US$215m the year before, as passenger traffic fell 75 per cent year on year and revenue tumbled 51 per cent.

Lead added that the airport’s shares had traded at almost A$9 a share prior to the pandemic, but had fallen to less than $5 a share since it struck.

Saul Eslake, an independent economist and fellow at the University of Tasmania, said the spending spree had been propped up by the “substantial” capital held by Australia’s superannuation funds, which he said, at more than A$3tn, amounted to the third- or fourth-largest in the world, behind the US, UK and the Netherlands.

Eslake noted that Australia’s population growth, which was fuelled by immigration and stood at about 1.5 per cent in 2019 before the pandemic shuttered the country’s borders in March last year, outstripped the OECD average of 0.6 per cent.

With all Australian employers contributing 10 per cent of wages towards superannuation, funds had a lot of capital to spend, he said.

Shares in Sydney Airport closed up 2.8 per cent on Monday. The stock has risen more than 40 per cent since the initial takeover offer in July.

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