Auckland Airport shareholders have to make a decision on where they stand on a partial takeover. Bruce Sheppard, chairman of the Shareholders Association, sets out its view.
KEY POINTS:
The Canadian partial bid of $3.65 for Auckland Airport presents some interesting issues for both the shareholders of Auckland Airport and shareholders generally.
The bid is for only 40 per cent, at $3.65, a 70c premium to the market price of $2.95. The Canadians have offered brokers a fee to encourage shareholders to accept, thus compromising broker independence.
The airport board has matched this fee dollar for dollar to neutralise the brokers financially, to in effect pay brokers to encourage shareholders to vote no. It is likely that the Airport shareholders will bear the cost of this if it is not recovered from the Canadian bidders.
This process of paying brokers to interfere in the decision-making process of shareholders interferes in the democratic process of shareholders, corrupts the broking community and is a dead-weight cost to takeover activity and companies alike.
If taken to its illogical extreme, the practice, in our view immoral but perfectly legal, could result in bidders in effect increasing the price outside of the code, resulting in not all shareholders receiving the benefit of the fees. (Shareholders, of course, are aware that a fee is being paid and will ask to share in it), or worse result in the target company offering fees equivalent to the takeover premium to defeat the bid, in effect a distribution to some shareholder to the exclusion of others, or worse a cost on takeover activity that effectively insulates bad boards from good corporate activity.
Back to the issue for Auckland Airport shareholders.
For the Canadians to succeed they need to procure a vote of 50 per cent of those who choose to vote to allow their bid to proceed.
The airport will call a meeting to determine this and voting papers are being distributed along with a board recommendation to vote against the resolution.
In due course if the vote is successful you will also receive an acceptance form to transfer your shares to the Canadians.
Firstly, it is fundamentally important that you vote your shares. If you do not those who do vote will win the day, and if you do not want to sell your shares it is doubly important for you to vote, as those that do wish to sell are strongly motivated to vote yes. You can be sure that most of the institutional shareholders will want to sell, especially if they think they can get all their shares away at $3.65, due to small shareholders declining to accept. You can't trust the councils either.
Fill in your forms - a big turnout is important. Vote yes if you want to sell, vote no if you do not want to sell. The Shareholders Association will be attending the meeting and will act as your proxy.
Now to acceptance should the vote go the Canadians way.
If more than 50 per cent vote in favour of allowing the Canadians to proceed it is a good indication that the bid itself will succeed.
What this means is that those that choose to sell will get $3.65 for some or all of their shares and those that choose not to sell will be left as a shareholder in the company with a new dominant shareholder.
This means that the chances for minority shareholders ever extracting a control premium are virtually nil. It also means that the Canadians will effectively appoint the board and drive strategy.
On the face of it they add no value as a strategic shareholder. The Canadians will also control dividend policy and could choose to restrict dividend flows further depressing the price of the shares that you hold.
This said, as debt is involved in the transaction they may instead choose to dividend strip the airport.
In short, if the vote gives the Canadians clearance to buy you should all accept the bid and get 40 per cent of your shares away at the higher price, if you do not you are transferring this value premium to hedge funds and institutions.
To recap, our recommendations to you are these:
* Vote your shares.
* If the vote allows the Canadians to proceed, accept the bid but accept you will be heavily scaled back, you may only get 40 per cent of your stock away.
