KEY POINTS:
The Auckland International Airport board has ignored the advice of its own advisers First NZ Capital in formally rejecting the partial takeover bid from the Canada Pension Plan Investment Board.
The board has also played down the significance of a report released yesterday by independent valuer Grant Samuel
which valued Auckland Airport shares at between $3.05 and $3.48 - well below the price being offered by CPPIB.
Airport chairman Tony Frankham said the board considered the opinions of both First NZ and Grant Samuel but decided shareholders would ultimately be best served by holding on to their shares.
"I think it's fair to say that the board is more optimistic about the future than Grant Samuel appears to be."
He highlighted three key reasons the board had rejected the bid.
The first was that the offer price of $3.655 per share was unlikely to be realised by shareholders because the bid was partial. Because the offer was only for a 40 per cent stake acceptances could be scaled back significantly if more than 40 per cent of shareholders accepted.
Frankham said there was no certain price the board could put on the offer after scaling.
"We haven't been able to put a number on it. The judgment call that we have made is that shareholders are likely to [do] better by hanging in than by selling. That's our position."
In a report explaining its decision - also released yesterday - the board reveals that it approached CPPIB earlier this month about the possibility of their making a full takeover offer.
They chose not to do that, but had they done so the board would have been likely to recommend it at the $3.6555 price, Frankham said.
A full takeover offer would have given shareholders certainty about price and provided a much cleaner process, he said.
CPPIB vice-president and head of infrastructure Graeme Bevans said the company had considered the idea but decided in the end that it had already made a public commitment to taking a minority stake in the company and that it was important to stick to that.
The board's second argument was that their may be greater value in the airport than has been recognised by Grant Samuel.
It was a matter of taking a long-term view, Frankham said.
He accepted that the price was likely to stay well below the present offer for some time if the bid failed.
"Whilst we can give no assurance that the share price is going to come back to this level by such and such a date, we have high expectations if [you] look at the growth the airport has shown since the IPO."
The third issue counting against the bid was its two-tier structure, he said.
If CPPIB is successful in getting a 40 per cent stake it has undertaken to restructure the company by way of an amalgamation process - to unlock capital and make it more tax-efficient for shareholders.
"We think that, because the amalgamation is pretty uncertain, the residual company with the Canadians on the register at 40 per cent will lock out any other opportunity for a more appropriate reconstruction and cornerstone shareholder."
Frankham said the board had legal advice suggesting the IRD was unlikely to approve any amalgamation.
"The board will start a new process of looking for a partner to take a minority interest and we will mount a process that sets out the parameters and is an orderly approach," he said.
CPPIB's Bevans wasn't expecting the current board to support the bid but said he was still surprised by a couple of aspects of the decision.
"We were expecting that the company would be soliciting other offers during the period of our offer, I think its disingenuous of the company to cease that process," he said.
The board has said it will continue to seek takeover offers but that it cannot seek other amalgamation proposals now because of a condition of the CPPIB bid.
"We don't believe that clause creates an issue and if it does we're happy to adjust the offer to allow them to do that," Bevans said.
A more pleasing surprise was the "very strong" support for the offer from Grant Samuel and the advice of First NZ Capital, he said.
Bevans rejected the view that sellers would have their acceptances scaled back to a large extent.
"Our expectation is that the likely acceptance level is no more than 50-55 per cent."
At those levels there would be little or no scaling.
Big shareholders such as Manukau and Auckland Cities - which between them hold about 23 per cent - have already indicated they will not sell.
Auckland Airport shares closed down 6c yesterday at 274c.
