KEY POINTS:
Whether it likes it or not, the Canadian Pension Plan Investment Board is fast being put back into its traditional box.
It's being forced to wear the clothes of a relatively passive investor in Auckland International Airport, rather than be allowed to be the key determiner of the airport's future.
The major long-term upside for the fund is the potential gain it may make on its targeted 40 per cent "economic" stake in Auckland Airport, if it ultimately sells effective control to a bidder that fits the airport board's desire for a cornerstone shareholder which brings real aeronautical expertise to the table.
In the meantime, the Canadian fund will not be able to extract hyper-dividends _ courtesy of New Zealand taxpayers _ on a stake for which it will have paid a control premium. Nor will it be able to exert board influence commensurate with its shareholding percentage.
The Canadian fund's controversial bid had now reached the crunch phase _ that time when the political wheelers and dealers are gearing up to decide whether it's in New Zealand's national interest for the fund to acquire a strategic stake in this country's major international gateway.
At first blush, the Canadians have been forced to make so many concessions to their bid to meet new Government strictures that is it hard to see what they bring apart from a big payout right now to the airport shareholders that sell into their offer.
The overseas fund's ability to work a major tax dodge to advantage itself and two major airport shareholders has already been closed by the Government. Its ability to influence the airport's future would now appear to be lessened by the moves the fund's taken to get over a new Overseas Investment Office hurdle.
It's too early to tell whether the CPP's bid will turn out to be a blessing in disguise for the nationalistic airport shareholders _ like the Auckland and Manukau city councils _ which want to see New Zealand control of the airport maintained at the ownership level.
Certainly the overseas fund's spinners have been putting it about that if the Canadians get to their 40 per cent threshold (which could be known as early as tomorrow evening) the resultant blocking stake "will, or, is likely to, assist New Zealand to maintain New Zealand control of strategically important infrastructure on sensitive land" _ in other words, fall within the ambit of the Government's new restriction covering strategic infrastructure on sensitive land.
The rationale goes that by introducing further restraints on how the Canadians can vote their shares so that the fund's ultimate voting footprint reduces down to 24.9 per cent of Auckland airport shares, control will automatically flow towards the "nationals".
This is a position that has meet with support from airport shareholders Infratil and could do the same with the NZ Super Fund. Both have big investment footprints _ and ambitions of their own _ outside New Zealand, and hardly want to appear xenophobic towards overseas investors on their own home turf.
Yesterday, Infratil said it would sell into the Canadian offer and there were suggestions the NZ Super Fund might follow suit.
At the end of the day, the Government is in the box seat.
It may yet decide the Canadians have proposed sufficient concessions to assist control of the airport being maintained in New Zealand, and, tick the proposal off.
This would enable the Government to keep its more xenophobic political allies onside while simultaneously retaining international investors' confidence in New Zealand, and, escaping the wrath of any `Mum and Dad' shareholders who would otherwise be deprived of the ability to capture a significant capital gain by selling into the offer.
It's early days yet.
At 5pm tomorrow, the Canadians will begin totalling up acceptances from Auckland airport shareholders. Yesterday morning the fund said it had received acceptances for just over 20 per cent of the shares.
It's understood that a number of institutions with significant holdings have yet to make their decisions public.
If the fund gets acceptances for more than 40 per cent of the shares _ and approval from at least 50 per cent of those who vote on whether the deal will proceed _ it will have got to first base.
That's when the to-ing and fro-ing _ already taking place in front of the Overseas Investment Office _ will intensify.
Prime Minister Helen Clark and Finance Minister Michael Cullen are now being prudent over what they say in public over the partial takeover bid. But it's apparent the Canadians have been listening carefully to the political drum and responding accordingly.
On Monday, the Canadian fund announced it would further reduce its ability to vote the entire 40 per cent stake _ if the partial takeover bid is successful _ down to 24.9 per cent of all Auckland Airport shares on issue. The fund said it would provide that the limitation to 24.9 per cent could only be relaxed or revoked by the CCP if it was permitted by NZ overseas investment laws or regulatory approvals to vote more than 24.9 per cent of the Auckland airport voting shares on issue.
This was not a particularly bright move.
Last week, National responded to the Government's new overseas investment restriction by saying that it would amend the law if it wins the election. National was of the view that strategic assets should be in majority NZ control but it was comfortable with foreigners holding minority holdings subject to the Overseas Investment rules.
The Canadian's proposed voting restriction would thus have gone out the window on a change of Government.
Yesterday, the fund recalibrated its proposed restriction by adding a new clause saying it would not revoke or relax the 24.9 per cent voting limitation unless approval was obtained by an ordinary resolution of all Auckland Airport shareholders (on which the CPP would not vote).
This important concession looks as if it should take care of any Government objection on the control score.
But at the end of the day, the two Cabinet ministers assessing the Canadian's bid will also examine national interest issues.
While the Government has closed the tax loophole, the mere fact that the Canadian fund was prepared to proceed with a partial takeover offer that would ultimately _ if the airport board agreed _ enable it to extract three times normal dividends, might still rankle with ministers as not acting in accordance with national interest.
The Canadians have produced little of real substance publicly to justify their claims to add aeronautical expertise to the airport board.
The fund does not have a history in expanding the tourism base of other countries through using its connections.
Behind scenes, the fund will have produced data to back its claims it will bring sufficient value to overcome national interest considerations.
But unfortunately for the Canadians, the rationale has been weakened during the process of this bid.
It can't leverage out tax benefits for other shareholders, and, it can't exert sufficient influence to really make a difference to the airport.
