Sunday, January 8, 2012

Is Auckland International Airport set for M & A activity?

Arial map of Auckland Airport infrastructure and some its land holdings.
From the rumour and speculation department comes an as yet unsubstantiated tip that there maybe a foreign interest kicking the tyres again at Auckland international Airport Ltd [AIA.NZX].

Market commentator Arthur Lim has speculated that the target of a mystery foreign group approved to make a $1.3 billion investment in New Zealand last year is likely to be a listed company like AIA given the secret nature of the plan.

"That it is kept so confidential does suggest it is a publicly listed company, Auckland International Airport is certainly a possibility," reckons Arthur.

Is Mr Lim Arthur or Martha about this or does his speculation have merit?

I don't know but the $1.3 billion figure suggested could well be applied to the bluff aluminum smelter, the Warehouse Group Ltd [WHS.NZX] for a part share or perhaps New Zealand Refining Ltd [NZR.NZX].

Lets imagine though that Arthur is correct in his speculation.

Well, what we do know is that two different companies tried to buy all or either part of AIA in 2007, with a Canadian and Dubai backed bid but none of these bids were successful because of political interference from the central government of the day who changed laws to stop bids going through and Auckland Council's who considered that selling their 22.8% combined shareholding in the company was not prudent.

Well, things have changed since then and we have a more business friendly government that is unlikely to object to foreign buyers taking a large chunk of the airport.

The new Auckland council will still object to selling (even in the face of the mounting debt that Len Brown is piling on the city balance sheet) but there is an approximate 60% stake up for grabs if we discount the council stake, and the stakes held by the NZ Super Fund and the Accident Compensation Corporation.

I think if Arthur's speculation has some truth to it then the Airport is indeed in play and what is up for grabs would probably be a minority stake of less than 50% given the obvious political pressures that will still remain, even under a more business flexible National Government.

Any bid by a potential investor would have to consider the airports monopoly position in this market, its great management and its good potential growth as the Asia Pacific region expands and air links get busier.

It is getting ahead of myself but any bid would have to be north of $3.80, a price that I would have turned down had the Dubai bid in 2007 been successful.

AIA shares finished trading at $2.49 last Friday and have had a good run over the last few months, rising by around 9% in a flat overall market. AIA shares had been trading consistently between $2.20 - $2.30 for the majority of 2011 so rumours of mergers and acquisition could well have sparked interest amongst those in the know.

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