If shareholders approve, Macquarie Group (ASX: MQG) intends to issue all of its shares in Sydney Airport (ASX: SYD) to everyone who holds Macquarie shares on a 1-for-1 basis.
This will remove approximately $1.4 billion from Macquarie's asset book, and Macquarie will then reduce the amount of shares it has on issue in by 5.62%. Investors will receive 0.9438 Macquarie shares for each one they currently hold (as well as receiving one share in Sydney Airport each). If it goes ahead, this share distribution will occur in January 2014.
The most compelling explanation for this distribution is that Macquarie – a faithful shareholder of many years — believes that Sydney Airport is likely to hit a wall in its growth in the near future and has decided to finally cast its former child company adrift. Sydney Airport reliably pays Macquarie approximately $70 million in dividends every year (a yield of around 5%), and no company would willingly part with such an asset unless it thought there were greener pastures around.
A share disposal is a great idea from Macquarie's perspective as it removes a share that has run out of steam from its asset book, consolidates its shares, and preserves the more than $1 billion in cash that would be required to buy back 5.62% of its shares. These savings can then be used on other, more lucrative acquisitions which will increase Macquarie's earnings growth further in future years. Macquarie has been working hard to grow its mortgage business recently and may be positioning itself for expansion in this area, or it may be targeting a different industry entirely.
Foolish takeaway
Macquarie shareholders should vote 'yes' for this proposal. In doing so they will grant their company increased flexibility and likelihood of improving on their earnings per share figures in the coming years. They will lose some Macquarie shares (though those that remain will be worth more and more in the coming years as earnings grow), and gain some shares in Sydney Airport, a solid income stock.
