Why the Sydney Airport share price has not crashed

Posted: 15 July 2021 2:34 pm

Australia’s biggest airport operator’s value has now jumped 27% over the last 6 months.

Shares in Australia’s biggest airport Sydney Airport (ASX: SYD) have bounced around on Thursday, dropping nearly 2% before rebounding to edge slightly higher. At the time of writing, the stock is trading 0.1% higher at $7.81.

Why is the Sydney Airport stock holding on to gains?

Sydney Airport on Thursday rejected a $22 billion takeover proposal from a group of infrastructure investors, saying the proposal undervalued the airport and was not in the best interest of shareholders.

The takeover proposal, which would have been one of the country’s biggest-ever buyouts, had triggered a 37% surge in Sydney Airport shares.

Despite the rejection, the share price has not moved significantly from that level, indicating that the market expects an improved offer from the consortium comprising of IFM Investors, QSuper and New York-based Global Infrastructure Partners.

The group had offered $8.25 for each share of Sydney Airport, a 42% premium on the stock’s previous closing price.

But Sydney Airport says the bid has come at “opportunistic timing” given the significant impact of the pandemic on the airport’s performance and also noted that the offer price was below where its securities had traded before the pandemic.

Bid a "good start"

COVID-19 has led to a collapse in travel demand. Australia's international borders are likely to remain closed until the middle of next year in part due to a slower than expected vaccination rollout.

Domestic travel has also been severely disrupted with Sydney’s lockdown now set to extend to at least 5 weeks in total after the outbreak prompted all other states to shut their borders to the city’s residents.

Still, analysts are betting there will be further offers.

Analysts at investment bank Jefferies last week said the takeover proposal was seen as a good start, but not one that gave a sufficient takeover premium to the company’s fair value.

Morgan Stanley analyst Rob Koh also backed that view this week, suggesting there would be a drawn out negotiation.

Meanwhile, a Bloomberg news report last week said another group of investors led by Macquarie Group were exploring a rival bid for Sydney Airport.

That is enough reason to give Sydney Airport investors some cheer and could explain why the stock has remained at its current elevated levels.

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