KEY POINTS:
Next time you touch down in Auckland you might want to savour the experience - you'll be landing at the world's most expensive airport.
Dubai Aerospace Enterprise's (DAE) offer - a mix of cash, securities in a new airport company and a one-off dividend - gives the airport
a market value of almost $4.7 billion.
That represents a trading multiple of more than 21 times earnings. Macquarie Airports - owner of Sydney International - trades on just 16 times earnings.
If he's feeling smug about that status, Auckland International chairman John Maasland isn't letting on
"There are not too many listed airports in the world to start with," he says, "and we are a profitable entity. If you look at listed airports then we are pretty high up there."
The directors, he says, are not surprised to find themselves besieged by suitors this year (there are still at least three, excluding Dubai, working on deals).
Macquarie Bank, Australia Pacific Airports Corporation and Canada Pension Plan all have teams on the ground in Auckland. None will concede to being fazed by the new benchmark set by the Dubai Aerospace offer.
It was never a question of if the international interest would come, only when.
"We were aware that things were happening," Maasland says.
Global demand for infrastructure assets has been rising as pension funds overflowing with baby-boomer cash seek stable long-term assets.
And there was a seismic shift in the industry when Spanish giant Ferrovial took over Heathrow last year.
Maasland had noticed that Dubai had created an airport company and was gearing up to get involved in the sector. "We knew we shouldn't be sitting there unprepared for anything," he says.
DAE Airports chief executive says Kjeld Binger agrees Auckland was always on the radar, although the speed with which his team had to move was dictated by a half-hearted Macquarie Airports raid in May this year. DAE Airports has been fully operational only since May 1.
Binger knew the market speculation would draw out other bidders so he didn't waste time making contact.
"I knew Auckland very well," says the affable Dane - who must now sell this deal to shareholders, including two politically volatile councils.
"It's always been an icon in this part of the world. It became listed before any other airport in this part of the world, so it was in the forefront in every respect."
As a cornerstone investment for DAE Airports, Auckland would sit very well, he says.
"It is a mature asset with mature management. The other issue is the growth potential."
Binger isn't shy about suggesting his team - all industry veterans from Copenhagen Airports - can create value that others can't.
"We see some upsides in Auckland that have not materialised yet," he
says. "The most important is route development."
DAE wants the new airport company to create a dedicated team to work on the financial viability of new routes, then go out and sell them to the airlines.
The team sounds not unlike the one Air New Zealand already has working on its route development plans.
Despite the fact DAE and Emirates share the same chairman, Sheikh Ahmed bin Saeed al Maktoum, Binger strenuously denies there would be any special treatment. However, the deal must be worrying Air New Zealand.
It's not that DAE would help just Emirates expand at Auckland - it's that it would help all-comers. Air NZ's global expansion plans could face some serious competition.
"If we can develop something with Emirates and the European markets we are happy to do that," Binger says. "We are as happy to do that with Air New Zealand, or Singapore or Qantas. China Southern, for example, is absolutely a market we should have a look at."
Purely based on price, the deal has few critics, although some have raised questions about the $1.39 value attributed to the stapled security shares in the new airport company.
But the big difficulty, for all potential buyers, is that the only way to justify a world-beating price is to unlock some of the capital tied up in the airport.
A source close to one of the rival bidders says: "The key to this deal is loading the airport up with debt until you get to the BBB- (the lowest investment grade rating offered by Standard & Poors) and creating a new company to put this into. If you can't do that then you're buggered."
With Auckland and Manukau City having almost 25 per cent of shares locked up between them, none of the potential bidders expects to take 100 per cent. But those hoping for a simple cash takeover targeting 50.1 per cent look likely to be disappointed.
Any rival proposals will have their own quirks and nuances - but they will almost certainly involve amalgamation or merger deals.
A new structure is needed so capital can be returned more efficiently to shareholders. At the moment the airport uses dividends that come with imputation credits to offset tax - but neither the councils nor overseas shareholders can make full use of those credits.
The new stapled securities shares will deliver returns on a pre-tax basis through interest-bearing capital notes.
But a merger means a shareholder vote - requiring 75 per cent support - and the daunting prospect of wading into Auckland local body politics. The riskier nature of the new airport company is something shareholders must consider.
Maasland isn't concerned about the prospect of a lower rating. Retaining a rating of at least BBB- is one of the fundamental conditions, precisely because it is still investment grade and allows the company to continue borrowing, he says. If something dramatic did happen "then clearly as a major shareholder DAE have got to come in and help".
Maasland puts a good deal of faith in the 87-page co-operation agreement which the airport and DAE made public on Monday.
It outlines expectations, including generous concessions such as DAE taking a minority of board seats, retaining the local management team and the long-term development plan.
But critics aren't convinced. "Ultimately Dubai are in control," says one. "If they were serious about being a minority, why not take just 49 per cent?"
"You'd have to say there is a measure of trust at this stage," says Maasland. "But that's what the co-operation agreement is for - to tie them down. Let's put this down in black and white so we've got some control if it does go ahead."
"If there were substantial changes then the the public will ask what has happened."
In the end the regulatory control is all held in Wellington, he says.
Binger is surprised by the nature of the political uproar this week. "I am not surprised that stakeholders take a prudent stance on the future of the gateway to New Zealand ... not surprised about that at all. But I was surprised that it took this direction to Dubai.
"It's a little bit of a low hit, to take this as an example."
Public reaction has been so strong to the Dubai Aerospace offer that some brokers - not all of them biased - called the deal a dead duck by the middle of the week.
Manukau City Mayor Barry Curtis is so strongly opposed that he won't even meet Binger.
While there might be sympathetic councillors at Auckland City they face the public scrutiny of an election campaign in the weeks before the deal goes to a vote in mid-November.
Binger isn't panicking. "As I read it The Auckland Council is not forming a strong opinion for or against - we have some strong personal opinion from the mayor of Manukau," he says.
DAE believes it has time on its side. It couldn't talk directly to shareholders until Monday and while it has now met investment officers at both councils, Binger has yet to sit down with councillors face-to-face.
When he does he believes he has a strong story to sell.
"We are not putting $2.6 billion on the table to undermine the business. We're putting it there to add value and make it grow."
