KEY POINTS:
Auckland City's mayor John Banks says the "writing is on the wall" for his council's crucial decision on the Canadian bid for a stake of Auckland International Airport.
Shares in the airport yesterday plunged 38c to $2.45 on the back of speculation the partial takeover could fail after
tax law changes.
The city council holds a 12.74 per cent stake of the airport and its vote on whether the deal should go ahead is seen as pivotal.
The bid by the Canada Pension Plan Investment Board hit a major obstacle on Monday night after the Government closed a tax loophole that formed the basis of a proposed amalgamation, if the offer is successful.
Although Auckland City was never going to sell its shares, councillors will on March 12 vote on whether the bid should go ahead.
"I cannot speak for my colleagues but the writing is on the wall. The outcome has always been for Auckland City, inevitable."
Canada Pension planned to issue investors with so-called stapled securities in a new airport company, made up of a fixed- income note and a share.
The retrospective law change prevents companies using stapled securities to pay tax-deductible interest to shareholders instead of dividends, which could have cost hundreds of millions of dollars in lost tax if they had become common.
Banks said the plan "was flawed from day one" and he had advised the Canadians of this.
"Consequently my personal point of view was that while it had some appeal to mum and dad investors it had no appeal to long term shareholders like Auckland City or Manukau City."
If the stapled security scheme had gone ahead as planned the council stood to make an extra $15 million to $20 million a year on top of its annual airport dividend of $12 million a year.
In spite of the setback from the tax law change CPPIB said it would proceed with its bid.
CPPIB said that the stapled securities were only to be issued under the proposed amalgamation, which would be considered by the Auckland Airport board and shareholders after completion of the partial takeover.
The board said: "It has always been CPPIB's intention for any amalgamation proposal to be implemented with IRD approval through a binding ruling. CPPIB intends to monitor the progress of the proposed taxation changes and will be consulting with IRD on the details of the proposed changes."
Simon Botherway of Brook Asset Management - which holds airport shares and is a staunch supporter of the Canadian bid - said the tax ruling made the bid more compelling.
Other bidders would be deterred after the ruling in the future meaning shareholders should take the money on offer now.
The Canadians may have considered pulling the bid but he did not believe there was an out for them, Botherway said.
"The irony here is that we've sold any number of businesses internationally and here we are with a credible buyer fronting up with a huge price and we're trying to reject it. It's offensive really."
Macquarie Equities New Zealand investment director Arthur Lim said the amalgamation plan could be reconfigured.
"There are other ways of doing it but they wouldn't be as tax efficient."
CPPIB has said it met Auckland City and Manukau City representatives about once a fortnight to update them on its bid
The council's stance meant the hurdle to get 50 per cent backing had got higher.
"Shareholder fatigue" was setting in, but "if they don't get this transaction through the Canadians could come back with an offer for 20 per cent with a much lower price," Lim said.
The airport board on Monday recommended shareholders sell their shares but vote against the present deal.
