KEY POINTS:
The board rumble at Auckland International Airport that deposed John Maasland as chairman got under way straight after the November 20 AGM at which three new directors - Lloyd Morrison, John Brabazon and Richard Didsbury - were elected on to the board by shareholders.
But the coup didn't originate (or if it did there are no obvious fingerprints left at the scene) in the new directors' camp. It was the old guard of Keith Turner, Joan Withers and Tony Frankham that put the skids under Maasland.
Frankham, who was unanimously confirmed as the new chairman one day before Maasland was due to muster his board, confirms the issue had been kicked around for about six days before the move took place.
Around the corporate traps, the story is that Turner originally proposed himself as Maasland's replacement.
But other directors believed that while Turner has had an outstanding career in the electricity industry he would be compromised in taking on the chairman's role while he was still serving as chief executive of state-owned Meridian Energy, and, irrespective, he did not have sufficient listed company experience to lead a corporate that was in play.
Frankham (who took Turner's call) says he let it be known to the old board that if there was an opportunity to take the lead as the company's chairman he was definitely interested and available to do so.
According to Frankham there was no formal decision by the old board to oust Maasland - it just evolved over a few days. Maasland read the winds of change and formally resigned.
Frankham is now chairman, with Turner as his deputy.
But an anonymous observer with a well-developed sense of mischief quickly let it be known to news media that Frankham's chairmanship would last only until Turner stepped down from his Meridian role in March.
This seems most unlikely.
As corporate coups go, this stage has been a relatively gentlemanly affair, overlaid with a strong Wellington versus Auckland touch.
At the Deloitte/Management Magazine Top 200 Awards in Auckland just two days after the ouster Maasland presented as fairly relaxed and glad to be out of the show.
If he was smarting at the turncoatery of the old board he wasn't letting on.
Morrison, who initiated the joint Infratil/NZ Superannuation Fund move on to the airport's share register earlier this year - was also present and basking in his surprise at being named as New Zealand business executive of the year. (He had been lost for words when called on to the stage but later said the award had come five years too soon).
Morrison's spoiler unsettled the airport board's plan for an amalgamation with Dubai Aerospace. But he still maintains Infratil itself is not set on ultimately gaining control of Auckland Airport and has instructed his offsider Paul Ridley-Smith to mind his company's stake to avoid the potential for conflicts of interest.
Former director Mike Smith, who stood down at the AGM after the board refused to put a subsequent amalgamation proposal from the Canadian Pension Plan Investment Board to shareholders, was also present at the Thursday night soiree. Smith clearly sees the situation as a shambles. But he is enough of a pro not to reinvolve himself once he has left a board.
Frankham, Turner and Withers have secured their in-house coup. But the next stage of the contest for control of the airport is a much bigger gamble which has the potential for reputational damage all round if the board does not handle the competing interests in a sophisticated fashion.
The Canadian Fund has tabled a partial takeover offer for a 40 per cent stake at $3.6555 a share. The partial takeover is the precursor to the fund's plan to amalgamate a special-purpose vehicle with the airport to form a new company backed by tax-effective staple securities that will enable shareholders to extract bigger cash returns on their investments.
Frankham says the major issue now confronting the board is to ensure a proper and appropriate restructuring of the airport company's balance sheet to enable greater distributions to shareholders.
The company will also need to start a search to replace chief executive Don Huse, who will stand down next year.
Frankham acknowledges the airport's balance sheet can stand more debt. But it is obvious that any amalgamation will have to pass the IRD's muster - a fact that Maasland made clear before he stood down. The Canadians have also acknowledged they will need to get a positive tax ruling for their amalgamation proposal to proceed.
This is not a simple issue.
Right now Auckland Airport fully pays company tax to the tune of $45 million each year. Ordinary shareholders receive fully imputed dividends, but, the two council shareholders (Auckland City 12.5 per cent, and Manukau City 10.05 per cent) are not able to extract an equivalent benefit as they do not pay tax.
In simplistic terms, if the balance sheet is ultimately restructured so that capital is effectively converted to debt, offshore shareholders will likely face (at most) a small withholding tax here on their returns.
This presents a predicament for directors as such a deal is unlikely to pass the IRD's muster unless a new major shareholder has a very substantial interest.
The Dubai Aerospace bid, which was seeking some 51-60 per cent of Airport following amalgamation, is likely to have got over the IRD's line on this score.
Frankham is not getting into just how the Canadian Fund's proposals stack up. But he confirms the bid was discussed at Wednesday's board meeting. The board is now weighing the Canadians' offer and will release its views to shareholders before Christmas.
Frankham acknowledges the board is between a rock and a hard place.
The directors appear to have taken the view that New Zealanders are opposed to foreign control of the airport. But the board cannot just enter negotiations on an alternative restructuring which might lead to an amalgamation with a third party player, as directors would be denying shareholders the opportunity to assess the current bid and that would put them in breach of the Canadian takeover offer.
Frankham says the central issue is to take a balanced approach and assess whether the Canadians' partial bid is in the best interests of the company and shareholders at large.
For the partial bid to proceed, 50 per cent of Auckland Airport's shareholders have to give their approval before shareholders get their opportunity to sell into the offer. That is because partial bids reduce the liquidity in a company's share register and make it nigh impossible for remaining shareholders to extract a premium for control in any subsequent changes.
Directors also have to assess the risk element relating to any subsequent amalgamation which would result in higher debt levels and a reduction in the company's investment grade rating.
It would appear the directors would face a credibility issue if they recommend against the partial bid on a price basis, when the $3.6555 a share the Canadians have offered is well above the current share price of $2.85.
If the Canadians do get to 40 per cent, their stake along with that of the two councils would likely be enough to push the deal along from a shareholder vote perspective.
But an amalgamation proposal has first to be signed off by all the Auckland Airport directors.
This might prove more challenging, given three of those directors have already voted against the Canadians' earlier amalgamation deal, despite a positive recommendation from the airport's advisers.
When the previous board panned that deal they cited the impact too much debt might have on the company's future financial health.
But it's reliably understood the Canadians' proposal, which had backing from bankers, required capital ratios to be examined at every point when additional debt was to be taken on board.
Auckland Airport's advisers, First NZ Capital and Credit Suisse, are actively soliciting alternative takeover offers from other parties, particularly those with aeronautical interests, to see if there are any other potential contestants for the Canadian Funds takeover offer.
First NZ Capital has already isolated one party that has expressed
an interest in acquiring a cornerstone stake in Auckland Airport. But details have yet to be firmed up.
Frankham is not expected to announce the new party unless a competing bid looks likely to materialise. But in interviews before he took up his position on the Auckland Airport board, Morrison expressed a preference for locating an Asian airport operator (such as Hong Kong or Changi or even Chinese aeronautical interests) to take a stake of no more than 24.9 per cent.
Morrison was also keen to see if the board could approach someone with airport management expertise, like Kjeld Binger, the former CEO of Dubai Aerospace's airport company, to take up one of the (two) vacant directorships on the airport board.
It's not just the Mounties who observe the rule - "we always get our man".
