KEY POINTS:
The Canada Pension Plan Investment Board must by now be looking at fall-back options in case the Government turns down its application to own more than 24.9 per cent of Auckland International Airport.
It's by no means a given that the two Cabinet ministers will rule the Canadian fund's bid is against national interest. But the hostile comments from the Government - and its political allies - suggest a degree of irrationality endures as far as the CPP is concerned.
This may not necessarily be a bad thing as far as the Canadians are concerned.
There comes a point when pursuing principle at any cost starts to look absurd, no matter which way you cut it.
At yesterday's closing price of $2.20 for Auckland Airport shares, the Canadian fund's $3.589 a share bid was still looking ridiculously over-priced.
The fund earlier that day confirmed the final levels of acceptances into its partial offer for 39.53 per cent of Auckland Airport shares not already held or controlled by CPP. Despite raising the block on trading shares not required for the takeover, the subsequent trading was desultory.
The CPP still has to get overseas investment approval before it pays over $1.76 billion to take ownership of its major stake.
If the two Cabinet ministers who make the final "go/no go" decision fail the Canadians' application on national interest grounds, the CPP has three options.
* Walk away from New Zealand.
* Lodge a judicial review against the Government.
* Make a market stand for 19.9 per cent of Auckland Airport shares.
The Canadians would appear to have invested too much time, and too much cash, in pursuing their Auckland Airport stake to simply head back to Toronto tail between the proverbial legs.
They've stumped up more than $10 million in legal and advisory fees in their lengthy takeover battle. The fund has also repeatedly demonstrated persistence in the face of cavalier opposition from the Government and frank hostility from Auckland Airport directors.
The Auckland Airport play has considerable strategic utility for the Canada Pension Plan.
The fund was worth $148.7 billion at December 31, 2007 - of which a mere $3.1 billion represented infrastructure investments.
Getting a slice of Auckland Airport would boost the fund's overall infrastructure investments by more than 50 per cent on a per dollars invested basis.
This suggests the fund will not lightly walk away from New Zealand, even if the Cabinet ministers pan the deal.
The major concessions the fund has made in recent weeks in an attempt to win a positive recommendation from the Overseas Investment Office (OIO) are not mere window-dressing.
The OIO will take them into account when assessing if the fund's application meets the new foreign investment test Finance Minister Michael Cullen announced six weeks ago: "Whether the overseas investment will, or is likely to, assist New Zealand to maintain New Zealand control of strategically important infrastructure on sensitive land."
The fund's lawyers have been in frequent contact with the OIO in recent weeks.
But the Canadian fund's Toronto-based board must by now be questioning the point of paying an exceptional premium for a 40 per cent stake in Auckland Airport.
The concessions are considerable: The fund will not be able to exert influence beyond 24.9 per cent of shareholder votes and it has said it will restrict its board representation to two directors. It will also no longer be able to access a nifty tax- effective mechanism to triple returns from its airport holding to offset the above market bid price - a loophole that Cullen closed earlier this year.
Two Cabinet ministers - both relative rookies - must by April 11 decide whether the CPP's application meets the "national interest" test, or fails it.
Given that the Canadian's application is still stuck in front of the OIO - despite being lodged last November - Cabinet ministers Clayton Cosgrove and David Parker will probably have less than 10 working days to make a decision before the partial takeover offer lapses.
If the Ministers withhold consent, a judicial review of their decision will not be a simple matter. The fund has willingly made concessions to the OIO which suggests that if a negative decision emerges it would simply be based on national interest grounds, or a belief that the Canadians' blocking stake does not really assist New Zealand in maintaining control of strategic infrastructure on sensitive land.
Where the Government could be challenged is on the way it interfered twice during the partial takeover process. First by retrospectively ruling against the use of stapled securities in company amalgamations and second by making an Order in Council to introduce the New Zealand control clause.
Parliament's regulations review committee is investigating a complaint from two business organisations against the Government's use of delegated powers to override primary legislation in this fashion.
The committee's investigation will not have any effect on the current bid. But any negative comments on the Government's move could have wider influence.
The rational option in the event of a negative decision would be for CPP to make a market stand for 19.9 per cent and make a partial bid at a later stage.
The fund wouldn't price a market stand at $3.6555 a share - which was the original offer price before dividend. But it wouldn't need to.
Many retail investors - stung by rapidly escalating living costs - would take their chance to realise some cash.
In the Canadians' case a 19.9 per cent stake would form a suitable launching pad if an incoming National government decided to introduce a rule limiting a single foreign ownership stake in airports to 49 per cent.
