Giant Bid Beats Off Foes But Fuels Failure Predictions
Sydney Morning Herald
Wednesday June 26, 2002
Can Southern Cross generate a return to justify the high price it paid? Brian Robins examines the deal.
After missing out on Melbourne's Tullamarine in 1998 when it had put the highest bid on the table, Macquarie Bank was anxious to make absolutely sure it won control of the trophy asset of Sydney Airport this time round.
So anxious was the Southern Cross consortium which the bank led that it pitched its bid to blow the competition away, outdistancing the nearest rival by more than $600 million with a $5.6 billion offer.
Ahead of the bid deadline, most expected the airport would fetch $4.6 billion to $4.8 billion. The Federal Government never indicated what it thought it would receive from the sale, although the outcome is expected to exceed its top estimate by over $1 billion.
The Sydney Gateway consortium of AMP and Deutsche Bank had offered $5 billion and the ABN-Amro-led Connect consortium about $4.6 billion.
Losers talked yesterday of a ``winner's curse" how Southern Cross could find it difficult to generate a return to justify the high price it paid.
``It's a good one to lose," said one, commenting on the large gap between the Macquarie Bank bid and the rival bids.
The huge gap between the bidders compares with the gap of just $50 million in the $1 billion sale of Freightcorp/NRC earlier this year.
But Macquarie Bank officials were upbeat, maintaining that they were paying a fair price for the best airport asset in Australia. The bank's CEO, Alan Moss, said: ``We feel the price is very satisfactory and compares well with other airports."
When Melbourne Airport was sold, the buyer paid 13.2 times the earnings of the airport; Southern Cross is paying 14.3 times the earnings of Sydney Airport.
However, rivals point out that if historical earnings were used, then Southern Cross would pay about 24 times the airport's earnings, which is unusually high.
As well, the Federal Government has removed many of the pricing regulations on airports, opening the way for much higher charges, which is also reflected in the huge price offered.
Macquarie Bank officials said that if the Sydney Airport sale had been concluded before last September, then the final sale price would have been higher, although they would not say by how much. Since the September 11 terrorist attacks in the United States international travel numbers have plunged, with Ansett's collapse hitting domestic travel numbers.
International numbers are only now starting to grow.
Backing the high price paid by Southern Cross is optimism that passenger numbers going through the airport will grow strongly over the next two years.
Forecasts drawn up by the International Air Transport Association for Southern Cross put international traffic growth at 9 per cent this year and next, with domestic traffic to show even stronger growth.
As a result, profits at Sydney Airport are expected to rise 20 per cent next financial year after an increase of 40 per cent this financial year.
Medium term, international traffic will grow 5 per cent, well below historic growth levels of 7.5 per cent.
Southern Cross Airports said there was ample capacity at the airport until 2020, and beyond, even though passenger numbers by that time are forecast to rise to 62.8 million, more than double the 25.3 million two years ago.
By 2020, daily movements at the airport are expected to rise by about 50 per cent from the present level to close to 1000 flights a day.
``There is an element of winner's curse in it," said an official from one of the losing consortiums who did not wish to be named.
``The only difference can be a fundamental view on passenger numbers and traffic forecasts. If I was an airline operator I'd be worried."
Airline representatives said they would seek discussions with representatives of Southern Cross to protect their position, especially after aeronautical charges at the airport were doubled in May last year.
For the Federal Government, the huge sale price will enable it to finish this financial year with a cheque for $5.4 billion, and begin the next with a cheque for $192 million when the bill for the Ansett terminal sale is paid on Monday.
Funds from both these would be used to repay government debts, officials said.
AND THE WINNERS ARE...
40% Macquarie Airports
Listed on the stock exchange, it recently raised $500 million to part-fund a successful bid.
11.7% Macqaurie airports group
A specialty investment fund of local and overseas investors in airports.
1.2% Macquaire Global Infrastructure Fund
An investment fund in major infrastructure projects
20% Ferrovial Aeropuertos
A major Spanish infrastructure investor
15% Hochtief Airport
A unit of German construction group Hochtief. Owns over 50pc of Leighton Contractors. Has stake in airports in Dusseldorf, Hamburg and Athens.
5% Abbey National Treasury Services
Part of Abbey National Bank of the UK.
5% Ontario Teachers Pension Plan Board
Super fund for Ontario teachers.
2% Motor Traders Assoc of Austr Super Fund
MTA super fund.
© 2002 Sydney Morning Herald