KEY POINTS:
Dubai Aerospace Enterprise's cash-and-scrip offer for control of Auckland International Airport looks attractive at face value but the door remains open for a lower, all-cash bid, say fund managers.
Dubai has offered shareholders a range of options to achieve what it says is an equivalent value of up to $3.80 a share.
The base proposal would see shareholders receive $2.34 cash a share, plus a new stapled security (share plus loan note) in a new holding company Auckland Airport Ltd, plus a final fully imputed dividend from the present airport company of 7c a share.
At face value, the offer represents a premium of 55.9 per cent to Auckland Airport's average trading price over the month to May 5, when takeover speculation around the company picked up.
Ricky Ward, of Tyndall Asset Management, said the offer, even when discounting the dividend, appeared to be at a "pretty high multiple" compared with other companies, including airports, overseas.
"It certainly is at the higher end of what most people would have expected these sort of companies to trade at."
However, Ward said the true value of the offer was not immediately apparent.
"The problem is you've got a combination of scrip and cash and you've got to try to ascertain what the true value of that stapled security is.
"That's the bit that everyone's struggling with because clearly the company's going be under a different structure, balance-sheet wise."
Auckland Airport shares rose 10c yesterday to close at $3.41, well below the offer's face value. "That's a reflection of a couple of things," said Ward. "It's such a long time out before the trade is consummated and, clearly, investors are trying to value the composition of the bid."
However, AMP Capital Investors equities head Guy Elliffe believed the market was "pretty smart".
"Obviously, it's put an implied value on those securities given where Auckland Airport was trading today." That implied value, plus the offer's other elements, made it "in line with our expectations".
"In terms of our assessment of the underlying value, I think this offer's a pretty full one."
Brook Asset Management principal Simon Botherway questioned whether the stapled securities would be worth $1.39 each, based on the total proposed yield of 4.5 per cent.
However, Australian airport investor Macquarie Airports - with a Standard & Poor's BBB rating compared with a lower BBB- for the new airport company - pays a gross dividend of about 6.5 per cent.
Botherway estimated the value of the stapled securities at up to $1.10.
Elliffe said the complexity of the offer possibly provided the opportunity for a lower but all cash offer from another party. The airport's board had made it clear they were open to other offers and there had been interest from as many as eight different parties, two of whom had yet to complete due diligence.
He believed Dubai's offer was structured to appeal to "some existing shareholders" who probably wanted the ability to maintain a stake and also for tax reasons. Those existing shareholders probably included Auckland City Council which, said Ward, had been touted as a seller for some time.
What investors will get in deal
* $2.34 cash.
* A stapled security consisting of a share in a new holding company (which will own up to 60 per cent of Auckland International Airport) plus a debt instrument.
* Dubai Aerospace will pay shareholders $1.39 per stapled security if they wish to receive more cash out of a pool of up to $312.75 million.
* A fully imputed dividend of 7c a share.
Negotiator: I didn't tell you one word of a lie
Mike Smith, professional director and a lead negotiator for Auckland Airport on the Dubai deal, was kept out of the loop when his chief executive met the visiting Sultan Ahmed Bin Sulayem.
Smith had downplayed the Dubai discussions as late as Sunday night in interviews with the Herald, yesterday claiming he had not been asked the right questions.
Asked about a Sunday Star Times report that the Sultan had met airport chief executive Don Huse, Smith said: "There was a dinner somewhere and [he] flew out again but to the best of my knowledge it was nothing to do with the airport." Oddly, the airport deal was announced between the parties just over a week after that dinner.
Despite Smith declaring himself "the one fronting most of the negotiations with people" he said the Sultan "didn't ask to see me".
At the announcement yesterday of the airport board's proposed deal with Dubai Aerospace, Smith revealed that he had been negotiating a press release "and everything else" until 9pm on Sunday, thus his inability to be upfront with reporters. "I didn't tell you one word of a lie," he said. "Sorry, my conscience is clear."
