KEY POINTS:
Samuel Johnson famously said "Patriotism is the last refuge of a scoundrel".
Ambrose Bierce jumped in with his cynical correction "I beg to submit that it is the first."
I doubt this is what Auckland International Airport directors quite had in mind when they issued their - "It's your Airport - Let's keep it that way!" - to shareholders on Monday, advising them to reject the $3.655 a share partial takeover offer by the Canadian Pension Plan Investment Board.
The board's "target" statement couldn't be more aptly named. Instead of the usual drab - "facts only, ma'am" - presentation favoured by New Zealand boards as they tick off their advisers' advice that takeover offers are "fair", Auckland Airport's board has opted for a bold black and white cover (reminiscent of the All Blacks colours, or even director Lloyd Morrison's new New Zealand flag campaign?) to make its opposition clear. Why wouldn't they?
This, after all, is a hostile takeover situation - the sort we haven't seen in New Zealand for quite some time.
But the directors may have gone a tad too far by waving the anti-foreign investment flag, without underpinning just why the company's "brand, corporate reputation and standing in the wider community" should be negatively impacted if a "single foreign party" (like the Canadian Pension Plan Investment Board) should become influential over the airport's strategy and direction.
Predictably, the Auckland Airport board went against the advice of its financial advisers - Credit Suisse (Australia) and First NZ Capital - and recommended shareholders reject the Canadian offer.
Chairman Tony Frankham sets out the pros and cons of the Canadian Fund's offer in a letter to shareholders. It focuses on the fact that the second leg of the Mounties' bid - a proposal to merge the shell company holding a 40 per cent stake with Auckland International Airport - was so uncertain that the prospects of the airport company orchestrating a value-enhancing restructuring could be lost.
Frankham also made the valid point that the control premium that might be available from an alternative full takeover would be lost if the Mounties sat on 40 per cent. He also notes the share price will likely trend down below the $3.655 offer price in the medium term if the Canadians' bid does not succeed (it will trend down in any event after the bid closes).
The Mounties - as long-term investors - would just sit on their 40 per cent stake and refuse to allow anyone with a better deal to buy them (and the other 60 per cent of shareholders) out.
That's the gist of Frankham's message (my words, not his).
So far, so good. But what takes the cake is Frankham's inclusion of this gem in the "negative aspects": "Should Auckland Airport become substantially owned by a single foreign party (such as CPPIB) and that party becomes influential over the company, its strategy and future direction, then New Zealand public opinion and political sentiment may be negatively affected and this may adversely affect the company's brand, corporate reputation and standing in the wider community."
Really?
I immediately took Frankham's advice and turned to the detail on page 11 of the report for further elucidation. Did the chairman have something more to tell shareholders about what could be expected if the Canadians (or any other foreign party) became influential at board level?
Did the Government plan, for instance, to introduce legislation limiting foreign ownership in strategic assets (like Australia does with airports) hence resulting in an eventual sell-down by the Canadians to say 24.9 per cent?
Or is the board aware that two Government ministers might turn down the Mounties' bid for 40 per cent once it goes in front of the Overseas Investment Office?
Or is there some dark secret about Canada's pension fund that the board knows, but doesn't feel obliged to tell shareholders at this stage?
Was NZ First leader Winston Peters (or even Trade Minister Phil Goff) about to rark up public opinion against the Canadians? The answer to that is obviously yes.
The key explanatory points were nonsensical:
* There is a risk that substantial ownership of Auckland Airport by a single foreign party may impact on the company's brand, corporate reputation and standing in the community.
* This could adversely impact value in the long-term.
It's rather difficult to reconcile this statement with the admission (also in the target company statement) that the airport directors asked the Mounties to consider making a full takeover offer for 100 per cent of the shares. This would have enabled the shareholders to sell all their shares and not be left holding stock in an illiquid company.
But the Canadians refused.
This reconciliation is also difficult given Frankham's comments that even though the council shareholders object to a foreign entity controlling more than 50 per cent of the airport, such an outcome was still possible.
"The board would certainly entertain a fully priced full takeover offer and make a recommendation and it's conceivable it could be favourable. There must be a point at which, on pricing, the councils would be foolish to say we continue with our position."
Does foreign ownership only count if it can be used as a weapon to justify the board's antipathy to the Canadians? Or is it only foolish if the shareholders can't get out?
Let's be frank - New Zealanders or international tourists aren't going to stop using Auckland Airport if it is foreign-owned. It is New Zealand's major gateway. The threats to its profits are regulatory - from the Commerce Commission endeavouring to stop price gouging of its airline customer base.
Buried in Grant Samuel's report is the fact that the Canadians - if their two-part proposal succeeds - will ultimately be able to extract a return nearly three times what it would be if the current dividend flows were maintained. New Zealand shareholders would also get more cash - as would the two major council shareholders. But the airport board believes the IRD will give an adverse ruling.
The board also believes the Canadians bring little to the table in airport expertise, despite the fund's trumpeting of its experience at investor level in the Australian market, as they have no route-building or tourism expertise.
It might be uncharitable to point out - but neither did the current board till Morrison was elected a director on November 20.
It will be interesting to read the target company statement - when they manage to attract a shareholder with airport expertise as a cornerstone investor. I doubt foreign ownership squabbles will feature.
