* IFM, QSuper and Global Infrastructure Partners behind
* Board says proposal undervalues airport
* Would have been one of Australia's biggest buyouts
SYDNEY, July 15 (Reuters) - Sydney Airport Holdings Pty Ltd
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
Electricity poles-and-wires company Spark Infrastructure
Group rejected a A$4.91 billion buyout proposal from
private equity firm KKR & Co Inc 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% 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
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%
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.
The city's lockdown will run at least two more weeks after a
rise in COVID-19 infections.
A successful deal would bring its ownership in line with the
country's other major airports, which are owned by consortia of
infrastructure investors, primarily pension funds.
Australia's mandatory retirement savings system, known as
superannuation, has assets of A$3.1 trillion, according to the
Association of Superannuation Funds of Australia.
A Sydney Airport purchase, with an enterprise value of A$30
billion including debt, would position it to reap financial
benefits when borders reopen.
If successful, the purchase would be one of Australia's
largest by enterprise value in U.S. dollar terms, on par with
the $22-billion purchase of mall operator Westfield Group by
Unibail-Rodamco in 2017, Refinitiv data showed.
It would require the approval of the Foreign Investment
Review Board and Australia's competition regulator.
Cross-ownership rules may compel IFM to sell down a portion
of its holdings in other major Australian airports, Morgan
Stanley analyst Rob Koh said.
"It may be there is a series of further airport transactions
as a result of this," Koh said at a CAPA Centre for Aviation
event on Wednesday, adding that co-owners who probably have
pre-emptive rights would be logical buyers.
Last week, Bloomberg News said a consortium led by Macquarie
Group was considering a rival offer, citing
unidentified sources. With talks at an early stage, Macquarie
could also consider joining the Sydney Aviation Alliance, it
In a note, Credit Suisse analysts said there was potential
for other bidders, such as Macquarie, Australia Super and the
Future Fund, to get involved. Macquarie once owned Sydney
Airport and the rest have stakes in other Australian airports.
($1=1.3407 Australian dollars)
(Reporting by Jamie Freed and Paulina Duran; Editing by Stephen
Coates and Clarence Fernandez)