Criticism over the Sydney airport deal is being raised, as there are concerns that the company is being sold too cheaply. The concerns are being raised by private investor Joe Cambria, as owners are being asked to accept $8.75 a share.
Mr Cambria believes the price is too low, due to the flights being restricted and once flights return Sydney Airport would be a $12 stock.
From AFR 15.11.21
The proposed $23.6 billion takeover of Sydney Airport is “the most swampish deal I’ve ever seen,” according to private investor Joe Cambria, who claims the company is being sold off too cheaply and wants a board spill.
“I don’t believe that [chairman David] Gonski is actually working in the interests of shareholders. This to me looks like it’s a friendly sale rather than an acquisition,” Mr Cambria told The Australian Financial Review.
Mr Cambria, who owns 400,000 shares in the airport directly and another 300,000 shares via a family estate, claims the board has not adequately defended Sydney Airport from an unsolicited takeover bid from a consortium led by IFM Investors.
Sydney Airport’s board last week recommended investors accept a cash offer priced at $8.75 per share, stating it reflected “appropriate long-term value for the airport”.
But Mr Cambria, who has owed the company’s shares since the early 2000s, said the airport was “a fantastic asset in temporary distress” and would be worth more than $8.75 a share when flights recovered from the COVID-19 pandemic. “I think it’s a $12 stock,” he said.
IFM’s global head of infrastructure, Kyle Mangini, said last week that airports were resilient assets. “If you look back at passenger numbers around SARS, September 11 and the GFC, travel rebounds – it tends to get back to a very similar trend line,” Mr Mangini told the Financial Review’s infrastructure summit.
Mr Cambria has written to the six-member board twice to complain that it has sold the airport too cheaply. In his most recent letter, sent on Friday, he said he would “vigorously fight this attempted theft of a wonderful asset”.
“The suggestion that the purchasers are paying a premium above market value is laughable,” Mr Cambria said in the letter, which has been seen by the Financial Review. “The share price was artificially depressed due to COVID and its resulting restrictions.”
He said he was “aghast at how easily the board has folded and am questioning your competence, suitability for office and independence”.
“In my opinion, there should be a spill without delay and another board elected that will protect shareholder rights and wealth.”
Sydney Airport’s board, which includes former Macquarie executive John Roberts, lawyer Stephen Ward, former Carnival Australia CEO Anne Sherry, Downer EDI chief executive Grant Fenn, and consultant Abi Cleland, have fiduciary responsibilities to make decisions in the interests of all investors.
Mr Gonski declined to comment. A Sydney Airport spokesman said shareholders would make the ultimate decision on the transaction, which is being done via a scheme of arrangement, by voting on it.
Four retail investors have approached the Financial Review to declare their opposition to the airport’s sale, including Michael Pinn, Stephen Cordaiy and Carl Nielsen. But several big institutions support it.
Questions about business travel
Raaz Bhuyan, principal and portfolio manager at WaveStone Capital, said the firm believed $8.75 per share was a fair offer and would accept it because it was uncertain whether business travel would recover to pre-COVID levels, partially because companies wanted staff to fly less to cut carbon emissions.
“We think that business travel over the long term will probably be more subdued,” Mr Bhuyan said.
Mr Cambria, who is getting advice from lawyers to try to stop the takeover from proceeding, has also complained about a $150 million “reimbursement” fee clause that stops board members from making any negative comments about the sale, arguing that it is a “gag order”.
John Elliott, a partner at Norton Rose who specialises in M&A transactions and is not advising any of the parties in the Sydney Airport deal, said the reimbursement clause was “a break fee by another name” and was common in many deals.
A spokesman for the IFM consortium said “reimbursement fees of this nature are a standard feature of all M&A transactions”. Spark Infrastructure’s $5 billion takeover agreement with private equity giant Kohlberg Kravis Roberts and two pension funds also includes a reimbursement fee.
Some investors are unhappy with the indicative takeover timetable, which has scheduled a shareholder vote on the deal on January 24, two days before the Australia Day public holiday.
Sydney Airport said a formal date for the vote had not been set and “clashes with holiday periods will be avoided”. The Financial Review understands a vote is unlikely to be held in January.
A spokesman for the IFM consortium said it was confident shareholders would have enough time “to develop a fully-informed view on the merits of the transaction before they vote on it at the scheme meeting”.
Steven Haralambidis, an investor at Greencape Capital, said the current timetable appeared “ambitious” and would depend on the competition regulator’s views and the coming federal election.
If the Australian Competition and Consumer Commission releases a statement of issues in mid-December, the transaction could be delayed by a couple of months assuming approvals are received from the Foreign Investment Review Board (FIRB) before the government goes into caretaker mode before the election, Mr Haralambidis said.
“If FIRB approval is delayed until after the election, the timing could be pushed out to June,” he said. “We are supportive of the board’s approach to complete the deal as soon as possible to avoid a situation where it drags out.”
But Jamie Hannah, deputy head of investments and capital markets at VanEck, said the firm “would absolutely” like the shareholder vote to be held as late as possible. “The consortium want will want to push this deal through as fast as possible whilst they’re in the best negotiating position,” Mr Hannah said.
Although Sydney Airport’s share price would drop if the takeover did not proceed, investors had to weigh up short-term gain against long-term growth, Mr Hannah said.
“If you think about Sydney Airport as a long-term infrastructure asset, there is no doubt that as passenger numbers increase above previous levels that Sydney Airport would be trading above $9,” Mr Hannah said. “In 10 years’ time, the airport owners are going to be in a great position.”
The Australian Shareholders’ Association wants a vote to be held at the end of February or in mid-March.
Airport investors will be sent booklets with information on the proposed deal, including an independent expert’s report and a formal timetable, at least 28 days before the vote.
The booklet is reviewed by the Australian Securities and Investments Commission and a court, which will both consider whether there has been sufficient disclosure.
Sydney Airport’s passenger numbers are rebounding as travel restrictions ease. NSW said over the weekend that it would permit fully vaccinated international students to fly into the country without quarantining from December 6 and Health Minister Greg Hunt has removed all remaining restrictions on shops at international airports.
The International Air Transport Association’s most recent data on air travel shows that global demand for flights in September was down 53 per cent compared with September 2019, before the pandemic broke out.