KEY POINTS:
Auckland International Airport's directors should think long and hard then turn down the extraordinarily cavalier approach by the Canadian Pension Plan (CPP) to gain back-door control of the New Zealand blue chip.
The CPP investment board has waved a discussion document under the noses of the five directors: John Maasland, Tony Frankham, Joan Withers, Mike Smith and Keith Turner. But just because both sides have formally met, the airport directors don't have to get drawn into behind-the-scenes negotiation that will result in them signing a scheme of amalgamation to exploit a loophole in the Takeovers Code.
The airport directors will want to avoid shareholder questions over a preference for getting into bed with potential suitors and designing merger schemes rather than waiting to assess formal takeover offers.
They should not feel under any obligation to recommend offers ahead of an independent assessment of shareholder value. And they should be especially wary of getting deep in the design of any schemes of arrangement or amalgamations designed to exploit Takeovers Code loopholes.
It's difficult to see how the CPP board could seriously put forward a scheme of amalgamation that would be anything other than a triumph of form over substance. The warning bells are ringing loud on this one.
The Takeovers Panel, which has expressed concern over the use of such mechanisms to circumvent the Takeovers Code would be honour-bound to investigate if the airport and CPP approved a scheme of amalgamation.
The CPP's investment board - unlike the airport's prior suitor Dubai Aerospace - does not bring to the table specialist industry skills, connections, or the ability to drive tourist traffic to New Zealand.
It's difficult to see how any new company set up to control Auckland Airport could pass muster as an amalgamation when the CPP investment board is set up by Canadian statute to invest funds not currently needed by the Canadian Pension Plan, not as a trading company.
The jettisoned Dubai Aerospace bid also breached the spirit of the Takeovers Code. If that had gone ahead Dubai Aerospace would effectively have controlled cash flows and set dividend policy from 51 per cent ownership of the new entity.
Auckland Airport and Dubai would no doubt have argued publicly that the retention of four of the airport's directors on the merged company's board would have meant control rested in New Zealand. But Dubai's own executives were adamant they would not proceed with less than 51 per cent and they would have had control where it mattered.
There is another potential jeopardy for the airport directors. They need to be sure that any deal does not lay them open to charges of self-interest.
The five directors have excellent reputations and are sticklers for corporate governance but the way the CPP investment board has played its hand to date exposes the airport board to reputational risk that was not attendant with the Dubai deal, when confidentiality was upheld until the merger agreement was unveiled to the NZX.
The Canadian fund says it will settle for up to 49 per cent of Auckland International Airport shares. It says its amalgamation framework would give shareholders three options, one of which would be a cash offer of $3.70 a share. The other two options, which it claims would provide a value of up to $3.90 a share, would involve a combination of cash and new securities which it claims would enhance returns while preserving the airport company's investment-grade credit rating.
Trouble is, there is no offer on the table. The $162.5 billion fund is accountable to the Canadian Parliament and 16 million Canadian contributors and beneficiaries. The CPP's investment board prides itself on its corporate governance and disclosure policies. But it appears to have broken its own disclosure policy, as set out on its website.
The fund's investment board says it is committed to disclosing comprehensive and timely information about its investment activities. "We do not disclose information regarding investments under consideration or not completed, and we respect third-party confidentiality agreements."
But the manner in which it has thumbed its nose (twice) at the NZX by issuing two press statements promoting its intentions without having yet followed through by making a formal offer displays either shameful contempt for the spirit of the New Zealand securities regime or unforgivable ignorance.
On Wednesday it issued a statement outlining its intentions in relation to Auckland International Airport in response to continued speculation and market activity.
The statement was a nonsense.
There was a brief flurry on the NZX the previous week involving UBS Nominees. But there was little speculation over the fund's intentions before the CPP announcement.
If anything, the announcement appeared designed to put pressure on the Auckland Airport board ahead of talks on the discussion document. It also appeared designed to spook other contenders and stoke speculation that the CPP had obtained implicit consent from the Auckland and Manukau City Councils, which between them have 23 per cent of Auckland Airport's shares. If this is the case, airport shareholders need to be wary that they don't get end up with shares worth a pittance compared with the $3.70 after scaling takes place.
CPP's spinmeisters are flouting the spirit of the Takeover Laws through publishing so-called statements of intentions.
The Takeovers Panel is chaired by Auckland lawyer David Jones who advised the Minister of Justice on the wave of company law reform in the early 1990s.
Other members include investment banker Alastair Lawrence, corporate adviser Colin Giffney, lawyer Pip Greenwood, former Market Surveillance Panel chairman Kevin O'Connor, takeover lawyer David Quigg, company director Sue Suckling, former Tower chief Keith Taylor, and, PriceWaterhouseCoopers insolvency specialist John Waller.
Their reputations will also be on the line if they don't probe this one.
