KEY POINTS:
Foreign ownership of the country's biggest and busiest airport is now a hot issue, but the original scoping study for Auckland International Airport Ltd (AIAL) submitted by Merrill Lynch in September 1997 barely mentioned it as a topic.
The investment bank advising Treasury on how to sell AIAL identified 51 potential trade buyers and sounded out Infratil, which then held a 1 per cent stake in the airport.
The report contained no discussion about foreign ownership beyond that marketing the asset offshore would help increase the price and one sentence saying "shareholding restrictions in any form will depress price".
"Because of the size of an AIAL sale, placement of shares to overseas institutions will be vital to the success of the offer," says the report, obtained by NZPA under the Official Information Act.
Treasury wrote back to Merrill Lynch a week after receiving the report asking the investment bank to analyse the value impact of restricting foreign ownership "to say 25 per cent" and placing a restriction on the number of shares owned by any one shareholder to "say 5 per cent".
When Merrill Lynch scoped AIAL for sale the government owned 51.6 per cent, five councils together owned 47.4 per cent and Infratil owned 1 per cent it purchased from Rodney District Council in 1995.
Merrill Lynch visited Wellington-based infrastructure investor Infratil on September 10, 1997, meeting with Lloyd and Chris Morrison, and made notes that Infratil's preference was "to see themselves and councils as cornerstone investors holding 40 per cent with a 60 per cent free float".
Infratil believed AIAL's management was the best in the industry in Australasia. Infratil wanted a light-handed regulatory regime and an IPO rather than a trade sale.
Infratil is back in the game having now secured a 6.2 per cent stake in the AIAL along with the New Zealand Superannuation Fund at a time when Dubai Aerospace Enterprise (DAE) is bidding for between 51 per cent and 60 per cent of AIAL.
Those opposing the DAE takeover are arguing against foreign ownership of a key infrastructure asset and they are supported by polls of public sentiment.
Back in 1997 Merrill Lynch argued the Crown should secure another 8 per cent of the company via a shareholding agreement with one of the councils because a 59 per cent holding ensured control of the board and ensured access to all company information in a sale process.
"A holding of 59 per cent allows the appointment of four of the possible six directors and therefore board control of AIAL," Merrill Lynch said.
In the end the government offered its 51.6 per cent of the airport for sale in an IPO signed off by Winston Peters as the deputy prime minister, Bill Birch as the minister of finance and Tony Ryall as the minister for State-owned enterprises. The lead manager of the sale in mid-1998 was Merrill Lynch.
Some councils later sold out but Manukau and Auckland City Council still collectively own 22.8 per cent.
In the scoping study Merrill Lynch said an IPO of 100 per cent of the company would have fetched between $900 million and $1.5 billion. The $900m price equated to 9.6 times then operating earnings and a price-to-earnings multiple of 20.
DAE's current bid values AIAL at $5.6 billion.
The airport was already operating as a commercial business and the Airport Authorities Act was amended in 1988 to remove a provision restricting ownership of airports to the Crown, local authorities and Airways Corp.
AIAL had low levels of debt and was capable of funding capital expenditure without raising new equity. A private owner was expected to leverage the company up and take a special dividend.
The management team was highly regarded and was moving to increase revenue in non-core areas like retailing but this was seen as difficult to do while owned by government and councils.
Potential projects identified by management included building a hotel and a casino at the airport, an industrial park, a retail and theatre complex, building low cost housing on airport land, developing a distribution centre and campuses for training organisations.
Merrill Lynch advocated the Economic Value Added model for monitoring management performance used by Telecom and many other companies at the time.
The scoping study traversed Maori issues, including that Maori might try to block a sale and that Tainui was a potential investor.
The report estimates a 30 per cent premium over market value for the sale of 100 per cent and no premium for the sale of 59 per cent under a trade sale scenario.
Treasury asked for a reassessment of the claim of no premium with a sale of 59 per cent.
The 51 trade buyers identified included Air New Zealand, Qantas, Singapore Airlines, Bankers Trust NZ, Brambles, Brierley Investments, Ports of Auckland, institutional investors, Tappenden Holdings, Westfield Holdings, Macquarie, Lend Lease, Fay Richwhite and Soros Capital of the US.
- NZPA
