KEY POINTS:
Canada Pension Plan Investment Board (CPP) yesterday detailed its partial takeover bid for Auckland International Airport (AIA), as well as its plans to transform it into a global player.
"The management has the aspiration to expand their horizons and be able to provide at least management services on a global basis," CPP infrastructure vice- president Graeme Bevans said.
"This is an area where we believe AIA can play a particularly strong role in working with us."
He said, if successful in its $3.6555 per share cash bid for 40 per cent, it would use AIA's expertise to bid for offshore airport management contracts or even join bids for the airports themselves.
Bevans said a plethora of airport privatisations were coming up in Europe and North America, and AIA's unique management model was why CPP has been prepared to pay top dollar.
One of the first on the block will be the City of Chicago airport.
"That's a privatisation in which many people want to play and we believe that in partnership with the management of Auckland that we can be very successful in acquiring that airport," he said.
The price of "several billion dollars" would not be a problem for the Canadians who have assets of C$120.5 billion (NZ$170b) and, no, they would not necessarily need other partners.
In his briefing, Bevans sought to allay concerns about the Canadians' bid - that it amounts to effective control without paying the price and that they bring little to the table of value from within the aviation industry.
CPP will limit its voting power to 30 per cent in the selection of directors. This is specifically to allay the concern of 10 per cent owner Manukau City, which does not want any shareholder to have more than 35 per cent control.
Manukau City said it was seeking advice on the bid.
CPP would nominate three people, including Bevans, to a 10-member board. The other two would be an "eminent New Zealander" who may be independent, plus another person with international industry expertise, who will be a CPP consultant.
"That is a very strong indication that we are seeking to not control the board," Bevans said.
He said CPP would ensure AIA had a much stronger focus on route development in the same way it had encouraged its associate, Brisbane Airport, to do.
There, it had levied passengers to fund the local tourism body and used some of the levy to subsidise development of new routes.
Brisbane had snubbed incumbent carrier Qantas in order to encourage Chinese and other airlines to establish new routes.
Bevans said CPP's offer made AIA the most pricey airport in the region - at 22.2 times earnings before interest, tax, depreciation and amortisation. The next priciest is Sydney airport operator Macquarie Airports at a multiple of 17.4.
CPP was prepared to pay a "full takeover price" because AIA has a lazy balance sheet that CPP will exploit in the second part of its deal once the 40 per cent is secured.
Takeover vehicle, NZ Airports, will merge with AIA and shareholders would receive a stapled security of shares plus a perpetual note. That would give shareholders cashflow of 7-7.5 per cent versus a 2-3 per cent imputed dividend at present.
Bevans noted the $3.65 price was above all "non-conflicted" analysts' valuations. He took at dig a ABN Amro Craigs analysts, who have aligned with Infratil and value AIA shares at $3.80.
Infratil, together with NZ Superannuation Fund, own 8 per cent of AIA, and oppose the CPP. Infratil chief executive Lloyd Morrison is trying to get elected to the AIA board at Tuesday's shareholder meeting.
He has challenged the tax effectiveness of CPP's amalgamation, prompting CPP to seek a binding ruling from Inland Revenue despite it having several legal briefs in its favour.
The AIA board said it was evaluating the offer pending receipt of an independent adviser's report.
It noted the offer was subject to a number of conditions, including shareholder approval.
They will be mailed to shareholders on December 14 and will remain open until March 13 - long enough to allow the Overseas Investment Commission time to rule on the bidder's suitability.
The board said its views on the offer would be included with the target company statement mailed to shareholders before Christmas. This would include a copy of the independent adviser's report.
The board has also asked its financial advisers to seek all other offers but chairman John Maasland said potential investors had had opportunities to express intentions.
"While we have had discussions with more than 10 parties over the past 18 months, covering a range of local and international entities, these discussions were largely on the basis of a restructuring rather than a takeover," he said.
"Now that we have received a formal takeover notice from NZ Airport, in the interests of shareholders we want to ensure that all parties have an opportunity to consider this approach."
Bevans doubted any other bidder would emerge as few firms would be prepared to accept less than full control, and most bidders did not want to be part of a publicly listed company.
- NZPA
