BIL plan could get off ground

By GEOFF SENESCALL

Brierley Investments, led by Sir Selwyn Cushing, negotiated an upside reward for its shareholders in its agreement in principle to sell a 25 per cent stake in Air New Zealand to Singapore International Airlines.

On top of the price of 300c for each Air New Zealand B share Brierley would receive, it would collect two 50c a share performance-related top-ups from Singapore if Air New Zealand met specified targets for earnings before interest, tax, depreciation and amortisation over the next two years.

The mechanism would allow Brierley shareholders to participate in the expected financial benefits from Air New Zealand's securing Singapore as its cornerstone shareholder.

The deal has very strong commercial logic, analysts say, thanks to the meshing of the two airlines' routes into a global network and their ability to create operational synergies.

Moreover, Singapore's recently acquired stake in Sir Richard Branson's Virgin Airlines could open up further opportunities.

Although talks between Singapore and Brierley stalled 12 days ago in Wellington, analysts believe the benefits of the deal to Air New Zealand, Singapore and Brierley will lead the parties to resume negotiation.

Achieving this ultimate goal has required subtle tactics and careful negotiation by Sir Selwyn since the process was triggered last year by Singapore's declaration of interest in buying half of Ansett Australia from News Corp.

Had Singapore made a formal offer for Ansett, Sir Selwyn, as chairman of Air New Zealand and Brierley, would have been able to exercise Air New Zealand's pre-emptive right over News' Ansett stake in order to lift Air New Zealand's holding in Ansett from 50 per cent to 100 per cent.

But Singapore did not bid, so Sir Selwyn had a hard task getting News to the negotiating table and then making the Ansett purchase in a way which would leave Singapore interested in buying into Air New Zealand instead.

Having achieved those difficult goals, Sir Selwyn and Brierley chief executive Greg Terry moved into the final stage - the deal to sell a 25 per cent stake in Air New Zealand to Singapore.

Agreement in principle, including price, was fixed in talks in Singapore before the two parties met again in Wellington on Wednesday, March 15. But one issue proved thorny in the Wellington talks, according to people familiar with the negotiations. Singapore was keen to conclude a deal but the timing exposed Brierley to financial risk.

Brierley holds 17 per cent of the Air New Zealand B shares, the class which foreign investors are allowed to hold. To build a 25 per cent stake to sell to Singapore, Brierley needed to acquire an additional 8 per cent - 46 million B shares - in the market.

If the deal had been announced on March 15, Brierley could not immediately buy the shares at less than 330c because it had previously given notice to the market, as required of an insider, of an intention to buy in a range between 330c and 430c a share.

Brierley gave an amended notice on the day of the Wellington meeting that it would pay between 250c and 300c for Air New Zealand B shares but it had to wait 48 hours before it was eligible to buy. The price range was lowered because the threat of Virgin starting up an airline in Australia had driven down the prices of Air New Zealand and Qantas shares.

To protect Brierley and its shareholders from paying more for the Air New Zealand shares than it could on-sell them for to Singapore, Sir Selwyn asked Singapore at the Wellington meeting for compensation for any additional cost which might be incurred.

Singapore, however, felt that the deal was set for Brierley to deliver the 25 per cent stake. How Brierley did so was its business. Thus, Singapore was not willing to compensate Brierley for any additional expense.

The issue was unresolved and the deal stalled. Singapore Airline's chairman Dr Cheong Choong Kong left Wellington the following day unhappy he had no deal.

A further disappointment for the Singapore boss was a cool reception from the Government over talks about a loosening of its foreign ownership rules for New Zealand airlines.

As the rules stand, one foreign airline can hold a maximum stake of 25 per cent but Singapore sounded out the Government on taking a 40 per cent stake in Air New Zealand. Apparently this issue, however, was not a deal-breaker for Singapore.

The Australian press also reported that Singapore was unhappy with the prospect of Sir Selwyn continuing to chair Air New Zealand after it took a stake. But people familiar with the negotiations said Singapore had no such reservations.

Despite the setback, it is understood that both sides are keen to resume negotiations to conclude the deal.