KEY POINTS:
While the political debate rages about whether Auckland Airport should even be sold, shareholders are faced with a different dilemma - what is Dubai Aerospace Enterprise's offer worth?
And what is a stapled security?
DAE is offering to pay Auckland Airport shareholders a total of $3.80 a share - comprising of $2.34 in cash, a 7c dividend plus one stapled security share - which it says is worth $1.39 - in a new airport company.
A stapled security is a share which is attached to an interest-bearing capital note. It allows the airport to return capital to shareholders in a more tax efficient manner.
But there are doubts about its implied value of $1.39. Analysts warn it could struggle to retain its value if the DAE deal went through.
Forsyth Barr analyst Jeremy Simpson says the implied value will be hard to justify once the company returns to being valued on earnings fundamentals.
"We see real downside risk to the market value of the stapled security if the merger is successful," he writes in his latest research note on the airport.
That view is backed by Warren Doak at Macquarie Bank who says the security is "not without some risk".
Although initially underpinned at $1.39 by DAE's $313 million cash pool which will be used to pay out investors who prefer cash to the stapled securities, "the sustainable level will be set by the market", Doak notes.
At UBS, which is advising Canada Pension Plan on a potential rival airport bid, analyst Wade Gardiner is more explicit, suggesting a value of 94c to $1.11 is more realistic for the securities. That would give the deal a value of about $3.48-$3.57 per share.
With airport shares closing at just $3.33 yesterday the market is valuing the securities at a price well short of $1.39. But that was to be expected, Simpson said.
The current market value also reflected the risks that the deal might not succeed and the long time frame between now and the likely conclusion, he said.
Airport shareholders are scheduled to vote on the proposal in November.
Simpson warned that, based on fundamentals, it would be difficult to come up with a value above $3 a share.
DAE Airports chief financial officer Hamish De Run said he believed the stapled security was worth more than $1.39.
DAE would be taking its securities in the new airport company at an implied entry price of $1.83.
The stapled security would allow pretax distributions to be made to all shareholders and "put [the company] on the same playing field as other Australian infrastructure companies," he said.
The new shares and the capital note component cannot be detached and traded separately.
The note itself will have a face value of 60.97c and will pay an initial yield of 10 per cent.
DUBAI DEAL
AIRPORT OFFER
* $2.34 cash.
* One stapled security with an implied value of $1.39.
* 7c dividend.
STAPLED SECURITY
* An ordinary share attached to an interest-bearing capital note.
* The note will be valued at 60.97c.
* It will have an initial yield of 10 per cent.
* Some analysts doubt the stapled security can hold its value once it begins trading.
