Macquarie Airports to internalise management

[Craig Sandford]

Sourced from an ASX release from MAp:

Macquarie Airports (MAp) has reached agreement with Macquarie Capital (Macquarie) to
internalise the management of MAp.
The agreement has been negotiated by Independent Board Committees of Macquarie
Airports Management Limited (MAML) and Macquarie Airports Limited (MAL) on behalf of
MAp security holders.
Mr Trevor Gerber, chairman of the Independent Board Committee of MAML, said, “We have
examined a range of options to address the gap between the MAp security price and the
value of MAp’s airports and we have progressed a number of initiatives. We are confident
that internalising management is an important further step towards reducing that gap and to
growing value for all security holders. In particular an internally managed group has the
potential to attract a wider range of investors. We have negotiated a transaction with
Macquarie that is broadly neutral in terms of earnings per stapled security.”
Kerrie Mather will continue as MAp’s Chief Executive Officer and has been invited to join the
board. The MAp management team (who are currently employees of Macquarie) will be
offered employment with MAp and it is expected that most will transfer to MAp.
Kerrie Mather said, “MAp’s management team remains enthusiastic about the business. As
a result of actions taken over the last couple of years MAp is in a sound financial position.
We have high quality airports with good growth prospects and a strong management team
that is well placed to extract full value for security holders.”

MAp and Macquarie have entered into an Implementation Deed governing the internalisation,
which is subject to approval by MAp security holders at a special general meeting.
MAp will implement the internalisation by acquiring all the issued capital of MAML, the
responsible entity for the two Australian trusts which form two of the three entities in the MAp
stapled structure, and ending the Macquarie Capital Funds (Europe) Limited Advisory
Agreement with MAL, the third component of the MAp stapled security.
Macquarie will be issued 150 million new MAp stapled securities, at an issue price of A$2.30
per security, being the 10 day VWAP to 23 July 2009. The securities issued to Macquarie
have a value of A$345m. The 150 million securities represent 8.1% of the expanded capital
and will increase Macquarie’s interest in MAp to approximately 27.3%.
The termination of Macquarie’s management rights means no further management fees,
base or performance, will be paid to Macquarie. Base management fees have averaged
$44.1 million per annum in the 6.5 years to 30 June 2009. Performance fees totalling $255.5
million have been paid over that period. In addition after internalisation, MAp will earn fees of
A$1.6 million per annum which are currently paid to Macquarie. With the elimination of
management fees partially offset by the additional cost of internal management (estimated at
A$11.5 million in the first year), the earnings of MAp are expected to increase sufficiently to
broadly maintain initial earnings per stapled security on the increased capital following the
issue to Macquarie.
MAp and Macquarie have also entered into a Transitional Services Agreement under which
Macquarie has undertaken to provide support services to MAp for twelve months (including
six months at no cost) to allow MAp to operate as a standalone entity as soon as practicable.
Those support services include provision of premises, information technology support, tax
and accounting services.
The Independent Board Committees have commissioned an Independent Expert, KPMG
Corporate Finance, to assess the proposal. A copy of the Independent Expert’s report will be
included with the Notices of Meeting and Explanatory Memorandum. The Independent
Directors unanimously recommend the internalisation of management as being in the best
interests of security holders, subject to the Independent Expert concluding that the
internalisation is fair and reasonable to MAp security holders.

MAp security holders will be asked to consider and approve the internalisation at a general
meeting proposed to be held in early September 2009. As part of the internalisation, security
holders will also be asked to approve a change of name.
MAp’s existing directors will remain in place. In addition to the invitation extended to Kerrie
Mather, Macquarie has been invited to nominate a director to the board of MAML. This
director will stand for re-election by security holders at MAp’s next Annual General Meeting.
The Independent Board Committees have been advised by Grant Samuel Corporate Finance
and Allens Arthur Robinson.
MAp also takes this opportunity to reaffirm its intention to pay a total distribution of A$0.21
per stapled security for 2009 (subject to external shocks to the aviation industry and material
changes to forecast assumptions), A$0.13 having already been declared as an interim
distribution.