KEY POINTS:
Rival investors are still wanting to bid for Auckland International Airport, despite a merger proposal from Dubai Aerospace Enterprise (DAE) yesterday getting the backing of the airport's board.
Canada Pension Plan is now understood to have begun its due diligence on the airport and Macquarie Bank - as part of a consortium - remains in discussions with the board.
Another possible buyer is Melbourne airport owner Australia Pacific Airports Corporation - a joint venture between BAA, Hastings, AMP and Deutsche Asset Management.
Rival bidders aren't expected to rush offers on to the table, given that the DAE offer won't go to a shareholder vote until November.
It would make sense for bidders to bide their time and see if the Dubai bid can survive the tumult of Auckland local body politics, a source close to an interested party suggested yesterday.
Auckland airport chairman John Maasland confirmed that the board was still talking to parties, although he would not confirm numbers.
"There are certainly people who we are talking too," he said. They'll rock back on their heels a bit today."
But the process was now transparent and those parties could see what they had to beat.
"We think this is a good deal and there may be a better one," he said.
"But now it's out in the public domain it's much easier for us all to deal with."
At $3.80 a share the cash plus scrip offer looks high.
It is 55 per cent above the share price before the initial speculation about ownership change in May.
But the shares closed up 10c at $3.41 yesterday and analysts were quick to point out that the rise reflected the market's view on the pure cash value of the DAE offer.
That could leave the door open for competing bidders to make a nominally lower value offer but with a cleaner structure - such as just cash.
The Dubai offer is not technically even a takeover. It is a merger by scheme of arrangement, which will need the approval of 75 per cent of shareholders.
An on-market takeover bid which was conditional on reaching just 51 per cent could be less politically difficult as it could succeed even if both Auckland and Manukau city councils opted out. The two councils together hold 22.8 per cent, almost enough to scuttle a scheme of arrangement.
Maasland disagreed. A takeover offer from another bidder was a possibility but would be the "messier" option, he said.
"There's no certainty with this but at least we're progressing down a clear line and we know in the end what we've got. It has substance for both of us."
DAE chief executive Bob Johnson said he did not know if rival bids would emerge but he was confident his company had made a full value offer.
"By any ratio or any multiple this is a full value price. It's not a short cut," he said. "We try to find a place where it's good for investors but it's also good for the future."
The $3.80 a share value is comprised of $2.34 in cash, a 7c dividend and one "stapled security" in the new airport company, which is valued by DAE at $1.39.
A stapled security is an ordinary share attached to a kind of loan note - similar to a capital note.
Such securities cannot be traded separately, hence the term stapled.
The face value of the note will be about 61c and it will have an initial rate of return of 10 per cent - set for five years. It is expected that the total cash yield on the new stapled security will be 4.5 per cent.
The $1.39 value on the securities is underpinned by a DAE cash pool.
The pool of $313 million in cash enables shareholders to opt for more cash - up to a maximum of $3.73 a share.
If that is fully utilised it would take DAE's holding up to 60 per cent.
Alternatively, shareholders can opt for a maximum of scrip. That option would allow them to take two of the new stapled securities for each existing share - and just 95c cash.
But despite it remaining listed on the NZX investors will end up with shares in a much riskier company.
Ratings agency Standard & Poors said yesterday that it would downgrade its rating on the airport by several points.
DAE's Johnson said he wouldn't expect passengers at the airport to notice any immediate change if the ownership structure changed.
But in the longer term there was potential for investment in technology including security which could improve the airport experience for passengers and speed up transit times.
There was also potential for the company to make investments in other airports in Australasia and Asia.
Although that would be an issue for the board, the plan was to give the new Auckland airport company first option to buy any airports in the region.
THE OFFER
$3.80 a share in cash, scrip and dividends.
* Cash: $2.34.
* A stapled security worth $1.39 - consisting of a share in a new holding company which will own up to 60 per cent of Auckland International Airports plus a debt instrument.
* A fully imputed dividend of 7c a share.
