Groupe ADP sell-off seems more and more likely as the shared referendum loses steam

7 November, 2019

The international airport operator Groupe ADP continued its run of improved revenue growth in the nine months ended 30-Sep-2019, reporting a nearly 18% y-o-y increase to EUR3.5 billion.

This was driven by a spike in retail and services activities, rising by more than 44% to EUR1.1 billion, thanks to the full consolidation in ADP accounts of Société de Distribution Aéroportuaire/Relay@ADP and sales per passenger growth for airside shops being up 6.6%.

The Turkish airport subsidiary TAV Airports also saw a close to 10% gain in revenue, after the effects of losing revenue and passengers generated by Atatürk Airport. This was bolstered by dynamic international traffic growth in Turkey, Tunisia and Macedonia.

In a bid to further expand its hotel capacity, Groupe ADP also signed on with Linkcity and easyHotel to develop a new 209 room easyHotel at Paris CDG, to open in Jan-2021. Paris CDG's current accommodation capacity stands at 3448 rooms in 11 hotels and is expected to reach 4460 rooms by 2025 as a result of new and future projects in progress.

Meanwhile, the nine month shared referendum on the privatisation of the government's 50.6% stake in Groupe ADP is ongoing, concluding in mid Mar-2020. The sale could represent more than EUR9 billion, with a concession contract spanning 70 years.

The airport privatisation process is part of a wider range of reforms enabling the government to sell off a number of state-owned assets to finance other areas such as technology and innovation, and to create new jobs.

What before seemed like a very serious threat to the Phillipe government's plans, the referendum has only reached a little more than 18% of votes (around 850,000 votes) required for privatisation to be blocked, but it is almost halfway done. Barring an acceleration of votes in the second half of the referendum, this now makes it fairly likely that the bill will pass, and that the government will finally be able to decide on how to divest its stake.

The question is: who will put forward bids to purchase the operator if the referendum fails?

Following the announcement in mid-May-2019 that a shared referendum procedure would be launched, potentially blocking the government's plans to privatise the company, ADP's share price slumped effectively overnight - from EUR180 to EUR150.

However, its stock has slowly regained traction, increasing to more than EUR168 per share by 28-Oct-2019, with investors no doubt eyeing the outcome of the referendum very carefully.

A firm contender is VINCI Airports, whose deal with the government on a concession to build and operate Notre-Dame-des-Landes Airport in the Greater West region of France fell through spectacularly in early 2018 when the government rejected plans to construct the new airport. In any dealings to increase its stake in Paris airport group VINCI, which also already holds an 8% stake in Groupe ADP, may be able to negotiate with the French government over compensation due to it from the cancellation of the Notre-Dame-des-Landes concession.

VINCI chairman and CEO Xavier Huillard said recently that the group was still hesitant to discuss options for increasing its stake in Groupe ADP until it is decided whether or not the privatisation process will go ahead. He nonetheless admitted that it would be "incomprehensible" that the company could not be interested in acquiring a further stake, as airport development is "one of the key areas of the group".

Finally, the government must also decide on how much of the group will be divested. While the bill allows for the government's entire 51% stake to be sold, there have been multiple suggestions that it may decide to retain some interest at the same time as relinquishing its controlling stake.