Auckland could get stuck on runway

By Geoff Senescall

Between the lines


Auckland City Council must decide quickly what it wants to do with its 25.8 per cent holding in Auckland International Airport.

Failure to do so could cost it millions.

In fact the council's decision to delay making up its mind until next May might already have reduced the chance of it gaining a strategic premium for its block of shares.

This is because North Shore City council last week lured a trade buyer in the form of Singapore's Changi Airport for its 7.1 per cent stake.

Changi's move caught other would-be trade buyers on the hop. North Shore's stake was seen as too small to attract interest outside the institutional and professional investor market.

While the stake is small, Changi is clearly signalling it wants to be a key holder. But it is not certain whether Changi's presence will deter other trade buyers from bidding for the Auckland council holding if it were put on the market.

Several potential big hitters are in the wings for Auckland City's airport stake. They include British Airports Authority, Amsterdam-based Schipol and US-based Lockheed.

Having made the plunge Changi will not want to lose the prize. To prevent that it could simply buy more shares. Although the airport's share register is widely held, there are several pockets of institutional holdings which could be targeted if Changi wanted to pounce quickly.

By lifting its holding to say 20 per cent, it would take a gutsy buyer to take Changi on. Contested bids for public companies are rare these days. Moreover, Changi has plenty of fire power. It has $3 billion cash sitting in its balance sheet - enough to buy Auckland airport twice.

By usurping other buyers Changi would negate the strategic value of the Auckland council holding. It is estimated that the value could be a premium of around $20 million over the base value of the shares.

Auckland City Council can counter this quickly by deciding if it is a seller and move fast if it is. The ability to get a good price would then come down to the skill of a broking firm at creating sufficient tension among the interested parties to get the best deal.

The council has one bit of help now in tracking Changi's tactics. As a substantial security holder, Changi has to disclose every one percentage point movement in its shareholding. Nonetheless, it could still move far faster than the council.

If the council has trouble making up its mind it only needs to look at what other councils have got for their shares.

When the Franklin District Council sold its 1.2 per cent stake earlier this year it received 301c a share. North Shore got 290c last month. What will it be for Auckland if it drags its feet?