KEY POINTS:
The hostile takeover battle for control of Auckland International Airport has ratcheted up a notch or two.
The airport board has offered to pay commissions to brokers who persuaded their clients to vote against the Canadian Pension Plan Investment Board's partial takeover offer.
The board also placed double-page advertisements in major daily newspapers yesterday, advising shareholders to hold on to their airport as the battle enters the down and dirty stage.
Speculation is also running in Canada that JP Morgan Chase & Co could be potentially interested in funding a proposal that would lead to a substantial restructuring of the airport company, merging Infratil's airport assets into a new company where a major international airport operator would also have a cornerstone stake.
But the airport board is keeping mum over the identity of a mystery player now carrying out preliminary due diligence.
All the parties are shadow-boxing but shareholders need to look out for their own interests.
Quite why the brokers should be the ones to profit from shareholder clients exercising their democratic right to vote against the Mounties' $3.655 a share offer beats me.
The Canadian Fund kicked the ball off by saying it would stump up brokerage fees for all shareholders accepting its offer.
It basically means that the shareholders will get the full $3.655 a share and their brokers a fixed fee paid by the fund on any shares that might ultimately change hands.
The airport board claims its counter-offer is purely a balancing move to CPPIB's incentive to persuade its clients to sell.
But the airport spokeswoman's words seem a tad disingenuous.
The board's move, in fact, makes it very difficult for brokers to exercise an honest approach in advising their clients.
With another takeover offer potentially in the wings, according to tantalising statements by Auckland International Airport chairman Tony Frankham, brokers have a good incentive to persuade their clients to sit tight for now.
They know that they (the brokers) will profit in the short-term by picking up brokerage with the possibility that they will clip the ticket a second time if a subsequent takeover offer emerges and their clients sell their shares.
Either way they won't lose but their shareholder clients might if they fail to get their shares away.
It would seem more honourable for the airport directors to go direct and pay the shareholders to sit on their hands - but a clause in the Canadian Fund's offer documents effectively precludes that and would leave the airport board open to legal challenge.
Frankham has said the airport has been approached by a credible alternative international party and signed a confidentiality deed. Preliminary due diligence is under way. But the board was not proposing to rush things.
Frankham's comments put steam under the share price, which gained 8 cents to close at $2.80 on Friday.
The prospect of a rival bid emerging after due diligence could be genuine or it may simply be a ruse designed to give the board's campaign against the Mounties' offer more time to gel.
What is important for shareholders to realise is the fact that a full takeover offer is unlikely to be pitched above the Canadian Fund's offer price, which is itself above the valuation by Grant Samuel.
Unless any resultant takeover involves a restructuring of the airport's capital, it is hard to see the attraction to bidders in a full takeover when the company can be easily controlled from a 40 per cent position. The board opposed the Canadians' $1.4 billion offer, which involves transferring the airport's assets into a new company merged with the Canadians' interests and issuing new shares and convertible notes, and says it has legal advice that the proposal won't pass muster by Inland Revenue.
The position of substantial shareholder Manukau City Council, which is opposed to a full takeover, mitigates against a full takeover option, as the council has enough shares to block a compulsory takeover. Mayor Len Brown says the Canadian offer meets some of its criteria - the maintenance of its shareholding, continued development of the airport and retention of listing on the NZX. But it would lead to a single foreign shareholder having a controlling interest and the council is opposed to that.
The fund has countered by saying the airport board should be expediting any counter-offer so shareholders have sufficient details of any competing proposal to be able to make an informed decision on the CPPIB offer.
Vice-president and head of infrastructure for CPPIB Graeme Bevans is right to put pressure on the airport board to hurry the process. The fund has waived a clause in its offer preventing the airport from seeking competing bids.
The onus is now on Frankham and his directors to put more information on the table. That won't happen until the New Year.
But they shouldn't leave it too late otherwise what emerges will smack of an inside job.
