The consortium which earlier this month made a bid for Sydney Airport (ASX:SYD) have was not happy about its takeover offer rejected.
The Sydney Aviation Alliance, a consortium of four infrastructure investors, made the bid last Monday and after 10 days of consideration the airport rejected the offer today.
While the bid was a premium to its closing price the previous Friday it was below the highs reached prior to COVID-19 which wiped out the demand for air travel.
Why the Sydney airport takeover offer was rejected
In a statement to shareholders the company’s board said it had concluded the deal was not in the best interest of shareholders.
Sydney Airport expressed doubt the deal recognised long term value being below the highs seen pre-pandemic.
The board argued this value would begin to be unlocked as COVID-19 vaccinations increased and it could be trusted given its total shareholder returns of 19 per cent on an annualised basis between FY15 and FY19.
As well as this it noted there was potential to create additional value through further development of commercial property opportunities.
“The Boards recognise that the security price is likely to trade below the consortium proposal’s indicative price in the short term, however Sydney Airport will only progress a change of control transaction on terms that deliver and recognise appropriate long term value for Sydney Airport security holders,” it said.
“The boards and management will continue to operate the airport with the objective of maximising long term security holder value.
The bidders respond
Judging by its response, the Sydney Aviation Alliance evidently did not expect to be rejected.
“The Consortium is surprised and disappointed by the decision of the Sydney Airport Boards,” it said.
“The Consortium believes that the Proposal of $8.25 cash per stapled security represented an extremely attractive offer for security holders given the considerable short and long term challenges faced by Sydney Airport.”
The Sydney Aviation Alliance noted the takeover offer for the airport was a significant premium to recent prices and it wasn’t fair to consider the performance prior to COVID-19.
“The Consortium believes any assessment of Sydney Airport security prices before the pandemic is of limited relevance given the Company’s materially changed circumstances and challenging outlook,” it argued.
“This includes potentially significant reductions to demand arising from the pandemic, the introduction of a competitor airport in western Sydney in 2026 and changes in business and consumer travel preferences.”
Sydney Airport shares were nearly at $9 in late 2019 but dropped below $5 in the first quarter of 2020.
Shares surged last week to nearly match the takeover bid and have hardly moved since – even today with news of the rejection.