Monday, November 8, 2010

Auckland Council look set for a Auckland Airport Takeover

With a total holding of 22.45% of shares in Auckland International Airport Ltd [AIA.NZX] the new Auckland City Council is by far the biggest shareholder in the airport company.

It disclosed its shareholding this morning after the amalgamation of the council and the two individual holdings Manukau Council and Auckland city used to have.



With a left leaning council this got me thinking about the possibility that the new council might want to buy more AIA shares. This happened when the former publicly listed Ports of Auckland was purchased by the ARC a few years back under the left wing Hubbard Auckland Council.

I went digging on the council website and found a document that outlines a new council stance on Auckland Airport that allows it to purchase additional AIA shares:

The council adopted the policy on Auckland Airport shares in September 2007 as an amendment to its 2006-2016 10-year plan and the policy was worded and structured accordingly. The policy is now part of, not an amendment to, the council’s 2009-2019 10-year plan and has been updated to reflect this. Some other minor edits have also been made.

The previous policy did not allow the council to buy shares or other securities in Auckland International Airport Ltd outside of a restructuring transaction. The council believes there are a few other scenarios where buying additional shares in the airport would be prudent and having the flexibility to do so, should such a scenario arise, would be beneficial.

Consequently, the policy on Auckland Airport shares, has been changed to enable the purchase of more shares in the airport subject to council approval, following rigorous analysis against the objectives and criteria outlined in the policy.

The rest of this document outlines the possibilities of a new ownership structure for the airport and points out options the council could take:

A change in ownership or control of some or all of Auckland City Council’s shareholding in Auckland Airport, or a restructure of the council’s interest in Auckland Airport, may take place by any of the options listed below, or by a combination of those options, or in any other ways that satisfy the six general assessment criteria set out later in this document.

Option 1: The council joins a consortium, which will execute a full or partial takeover or otherwise acquire a substantial stake in Auckland Airport. The council would achieve an ultimate stake of at least 12.75 per cent in the airport by taking shares, or other securities, in the consortium.

Option 2: The council agrees to Auckland International Airport Ltd merging with another company, exchanging the council’s shares in the airport for shares or other securities in the new entity (provided the council’s ultimate stake is at least 12.75 per cent of that new entity).

Option 3: The council agrees to Auckland International Airport Ltd being restructured so that its business units separate into stand-alone entities, with the council receiving a proportionate equity stake in one or all of the stand-alone entities (provided that the council’s ultimate stake is at least 12.75 per cent of the combined equity of the stand-alone entities).

Option 4: The council sells shares, or other securities, in Auckland Airport for cash or some other form of consideration, provided that the council’s ultimate stake in the airport is at least 12.75 per cent.

Option 5: The council buys shares or other securities in Auckland Airport.

Option 6: The council transfers its ownership stake in Auckland Airport to a holding company.

Auckland Council’s 34 Long-term Plan 1 November 2010 – 30 June 2019
- released 30 Oct 2010

It seems to me that the new council have allowed themselves to be open for a bid in some form for the Airport as whole.

This raises two important questions.

Considering that this is such an important asset why has this change in policy been kept secret by Len Brown and the Council?

Also as a substantial shareholder surely the council should have let the NZX know that their policy has changed for it is material to the market and would have an affect on the company and the whole market should know, not just the guardians of the 22.45% holding in AIA held on behalf of the Auckland ratepayers.

Footnote:

It has been pointed out to me by Matt Nippert from the NBR that it seems the document I described above is an update to a 2007 planning policy and he thinks I have overplayed my hand. I must point out though that the following part of the Oct 2010 policy, which has changed from the 2007 version, is the significant part of the story though:

The previous policy did not allow the council to buy shares or other securities in Auckland International Airport Ltd outside of a restructuring transaction. The council believes there are a few other scenarios where buying additional shares in the airport would be prudent and having the flexibility to do so, should such a scenario arise, would be beneficial.

Consequently, the policy on Auckland Airport shares, has been changed to enable the purchase of more shares in the airport subject to council approval, following rigorous analysis against the objectives and criteria outlined in the policy.


Disclosure
I own AIA shares in the Share Investor Portfolio


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