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Fran O'Sullivan: Airport game may be over

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The Prime Minister is taking an unusually close interest in the Canadian Pension Plan Investment Fund's hostile bid for 40 per cent of Auckland International Airport.

Airport chairman Tony Frankham is keeping Helen Clark informed and has advised her ahead of shareholders on two key board moves: He called her before the release of the December 17 target statement in which the board resolutely opposed the Canadians' bid in a document headed, "It's our airport, let's keep it that way".

Frankham says he also told Clark last Sunday evening the board would tell the market the next morning that it would recommend shareholders sell into the offer.

The Government's close interest in the Auckland Airport bid suggests that it is not a fait accompli that the fund will succeed, even if it gets acceptances for 40 per cent of shares and approval from at least 50 per cent of those taking part in a separate vote on whether a partial offer should be allowed to proceed.

The Mounties will still need to get Overseas Investment Office (OIO) approval by April 30, and the two Cabinet ministers likely to make the final assessment are not expected to apply the usual rubber stamp.

The Canadians' bid is caught under two provisions of the overseas investment rules. Any acquisition by a foreign buyer of more than 25 per cent of a company, where the value of the securities or assets exceed $100 million, must be scrutinised by the OIO. But where sensitive land is involved, the Finance Minister (Michael Cullen) and Land Information Minister (David Parker) have the final say.

This has been ignored as shareholders concentrate on whether the fund will get to its 40 per cent threshold.

Frankham makes no apology for keeping Clark in the loop, saying Auckland Airport is one of New Zealand's strategic assets. The Government clearly has an interest.

The pas de deux between Frankham and Clark will nevertheless raise eyebrows on capital markets.

Auckland Airport's share price rose after last Monday morning's announcement, even though a majority of the board advised shareholders should not vote in favour of the offer to proceed.

Small shareholders look to boards for guidance when assessing bids and some would have been confused by the statements.

On Monday evening, Cullen and Revenue Minister Peter Dunne said they would close the major taxation loophole which the fund had planned to use to increase shareholder returns through a scheme of arrangement. The retrospective move was clearly a shot over the Mounties' bow.

Canadian Pension Plan Investment Board vice-president Graeme Bevans is putting on a brave face. But he must feel that he is embroiled in a major chess game, with the Government holding winning pieces.

The Government has not been slow to play a spoiler at critical times in this long, drawn-out battle which has already seen one bidder, DAE Aerospace, walk away.

Bevans admits, under current market conditions, the Canadians' trustees would not sign a $3.655-a-share offer, which equates to 22.2 times the airport's earnings before interest for the 2007 year. Retail shareholders should take it.

Auckland Airport has made submissions to the OIO on the Canadian bid. Despite Bevan's view that the airport company is unlikely to have been antagonistic, it is risible to suggest the board has departed from its view that if a foreign party gained influence over the company's strategy and direction, the negative public opinion could damage its value in the long term.

If the Canadians succeed in their partial takeover offer, but get turned down by Cabinet ministers they cannot go back to square one and make a stand for a smaller amount.

Frankham says that option is not available as the fund has done due diligence of the company. The game may already be over.

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