KEY POINTS:
After he announced plans to buy a majority stake in Auckland International Airport in July, Dubai Aerospace Enterprise's American chief executive Bob Johnson described the timing of his offer as fortuitous.
Auckland International had been put into play by a Macquarie Airports' raid on its shares just as Dubai Aerospace (DAE) had begun scouring the world for airport assets, he said.
But as it has turned out, the timing couldn't have been worse.
Auckland Airport yesterday announced that DAE now wants out - of this deal at least. It is invoking a technical clause in their agreement to exit the deal.
Legal proceedings taken by Air New Zealand - to seek a judicial review ofthe airport's new landing charges - constituted a "prescribed occurrence" or significant event, DAE said.
It also argues that the airport board is in material breach of the agreement fornot using its best endeavours to ensure asuccessful outcome to the proposal.
The parties now have until this Thursday to reach accord or the deal is off.
Auckland Airport said yesterday in a statement that it doesn't believe DAE has provided reasonable grounds for breaking the deal.
From the outset, DAE faced the unenviable task of trying to negotiate with two left-leaning Auckland local bodies on the eve of elections.
If DAE was looking for a tough workout on its first major international acquisition, it came to the right place.
The $2.6 billion offer - which DAE said was worth $3.80 a share in a mix of cash and scrip - would have given DAE between 51 per cent and 60 per cent control of Auckland Airport.
But as a scheme of arrangement it was dependent on 75 per cent approval by shareholders.
The councils - with 23 per cent between them - always held the key.
And with local body elections preceding the shareholder vote by just one month this was always going to get political.
Despite DAE Airports boss Kjeld Binger putting a brave face on it for the past three weeks, he and his team have admitted they are not the masochists they appeared.
Most of those watching the process closely believe the deal is dead. But they are divided about whether Dubai is truly packing its bags and giving up.
The Dubai team is saying nothing about the attempt to pull out - publicly,privately or any other way.
No one from Auckland Airport was prepared to comment further.
That has left the other players involved working through a range of possiblescenarios.
It may be, say some, that DAE has bigger fish to fry - there's speculation it may bid for London's Gatwick - and decided to cut its losses now rather than wasting valuable resources on an unwinnable war.
It is also likely that having decided it couldn't sell this deal it did not want to put it to a vote. Auckland Airport was to be DAE's first major acquisition. Outright failure would be a bad look.
But said one senior broker yesterday: "If I was Dubai I'd let the share price slide and then make a cash bid, on market - they've got the money."
Another option might be to come back after the elections with a revised offer.
A different political mix (and different mayors) might make a deal easier to sell.
Manukau Mayor Sir Barry Curtis has been a thorn in the side of the DAE team.
He was thrilled with news of DAE's retreat. "The withdrawal of Dubai Aerospace at the end of the day has done us all a favour."
He was also scathing of the Auckland Airport board. "My best advice to the company and its directors is to pay due and proper respect to the significant shareholding of the two local government units and don't take them for granted," he said.
"I was very surprised by the position they adopted, and think the public reaction has been a huge learning curve for the airport company and its directors."
Curtis said it was "patently unfair" of DAE to blame Air New Zealand for its attempt to withdraw from its bid.
Shares in Auckland Airport initially dived after the news - dropping as much as 19c to $2.86 - but they recovered to close down just 2c at $3.03.
Clearly there are investors who haven't given up hope of a sale.
If DAE does still have an interest, then it risks leaving the door open for rival bidders.
Canada Pension Plan is understood to have been close to going public with a proposal for several days now.
It may wait for the final outcome on Thursday but there is no evidence it is about to put its offer on hold even if DAE does pull out.
If CPP has a deal it thinks will fly in the current political climate then there is no reason for it to wait.
Curtis said he hoped any other bid would be for a minority interest respectful of the interests of the community stakes in the airport.
"I do hope they see their way clear to work with the local authority interests in the airport to achieve an outcome which will enhance the position of the local government shareholders and others."
He would not comment on the likely shape of any new bid, but confirmed that his council had on Thursday approved the distribution of consultation documents to residents and ratepayers next month to cover any eventuality.
Wellington-based infrastructure investor Infratil - which has put itself in a powerful position by buying a 6 per cent stake in the airport - has also been talking to CPP.
Managing director Lloyd Morrison also contacted DAE's Binger - but the pair didn't get as far as a face to face meeting before yesterday's bombshell.
Macquarie Bank, another potential buyer, is also still lurking hungrily in the background. It now looks likely to wait for CPP to show its hand before it makes any further moves.
One more piece of poor timing for DAE is that Auckland Airport's long-term earnings future is also uncertain right now with the regulation of its monopoly status under review by the Ministry of Economic Development.
While airport management is optimistic it will be left alone, Air NZ is probably putting more hope in this process than it is in the judicial review DAE claims to be so worried about.
The airline, which would make no comment yesterday, was never happy about the offer because of DAE's relationship to the Emirates airline.
City to ponder partial sale
Auckland City officers are inviting councillors to consider selling a slice of the city's airport stake - while retaining a strategic holding of at least 10.05 per cent.
That is one of three options included in a report prepared for a special meeting of the council on Monday, the others being to retain the city's 12.75 per cent stake in the airport or to increase its holding.
Although 90.8 per cent of 614 public submissions received by the council opposed selling any of its holding - worth $472 million at yesterday's closing share price of $3.03 - the staff report recommends that it amend its 10-year financial plan to allow a partial sale if that would maximise financial returns.
Officers believe the airport's current ownership structure is "not sustainable". But the report, noting a public perception of high strategic value in retaining council ownership, recommends that the city hold on to at least a 10.05 per cent stake.
It was written before the airport company indicated to the stock exchange yesterday that Dubai Aerospace Enterprise was preparing to withdraw its controversial $2.6 billion offer for a majority holding.
It says corporate restructuring features of Dubai's offer could have improved returns from the council's investment by about $111 million from 2008 to 2016 while theoretically allowing it to retain its 12.75 per cent.
But uncertainties about "stapled securities" features of Dubai's offer meant there was no guarantee the council could keep that proportion of shares.
