KEY POINTS:
Retrospectivity is never a feature of good law. It becomes even more untenable when it is applied without warning or consultation and in a manner that is bound to make international investors more nervous about placing their money in this country. They will be looking askance at the Government's decision to shut off retrospectively a multimillion-dollar tax break which was to have been the focus of restructuring if an overseas pension plan's bid for Auckland International Airport was successful.
The managers of the Canadian Pension Plan and Investment Board will be more than disapproving. Quite justifiably, they will be angry. Their overture for a 40 per cent stake in the airport may place too great an emphasis on unlocking capital and enhancing tax efficiency for shareholders and too little on improving services and value. But it was totally legal. Now, the market at least has little doubt that the Government's move against the issuing of stapled securities means the bid will go nowhere. The airport's share price slumped 12 per cent in early trading yesterday, a strong pointer to the importance of the now thwarted tax break.
This, of course, is not the first time that the Government has acted against a potential airport owner. Last year, Trade Negotiations Minister Phil Goff shot down an attractive Dubai Aerospace takeover bid when he said the Government did not want to see key public utilities sold off. The move against stapled stock instruments was just as blatant in its intent, as was the timing. Only hours before, the airport's board had changed its mind and recommended that shareholders accept the pension plan's offer. This was a breakthrough for the Canadians, even if the directors' backing was predicated on the most short-sighted of criteria, the "current financial environment".
More confusingly still, the board was divided on the second decision that shareholders must make - whether or not to approve the Canadians becoming a 40 per cent shareholder. It is here that the Government's act will come to bear. The Auckland City Council, the airport's biggest shareholder, does not want to sell its shares, but must have seen a considerable plus in the Canadians' tax plan. Now, there is no tax advantage and little incentive to approve the bid. It, and other shareholders, have effectively been steered towards a long-term view and the conclusion that the Canadian bid undervalues the airport.
The Inland Revenue Department may well have good reason to suggest that stapled securities had to be sidelined because of the potential for hundreds of millions of dollars to be caught up in deals. Such has been the case overseas, and the department's priority is to safeguard the tax base. But if a loophole had to be closed, it should have been done through normal channels, not retrospectively so as to trip up an overseas investor. Both the act and its timing smack of a Government intent on dictating the ownership of Auckland airport, and happy to dabble in the murky waters of retrospectivity to achieve this.
The ownership vacuum at Auckland International Airport makes a takeover virtually inevitable. Circling suitors confirm as much. The Government has torpedoed a bid from Dubai Aerospace that promised to take the airport to a new level. Now, a less attractive offer, which would have more than doubled the airport's debt within five years, has been undercut. The Canadians say they will plug on with their offer. The best-case scenario, however, is the appearance of a cornerstone shareholder with industry expertise and capital for expansion. Only then would there be a silver lining in this whole business.