Monday, December 17, 2007

What is Auckland International Airport worth to you?

News today that the directors of Auckland International Airport Ltd [AIA.NZX] have advised AIA shareholders to reject the Canada Pension Plan Investment Board offer of NZ$3.66 per share as too low and that the share price doesn't take in to account future growth and potential for the port in this part of the world comes as no surprise.

The independent valuation by Grant Samuels though indicates that the offer price by CPPIB is above their valuation of $3.48 at the high side and recommends to AIA shareholders that the offer is a good one.

AIA management, in the event of the CPPIB bid crashing and burning, will actively seek "a cornerstone holder" with "airport experience" smacks of nepotism to me as one of the largest AIA shareholders with a seat on the board, is Lloyd Morrison, head of Intratil, a majority owner of Wellington Airport, with small airports in Europe and Britain.

It seems that with the certain failure of Morrison's company trying to develop a second Auckland Airport in West Auckland, he now seems intent on getting a foothold in what would have been his competition had his bid for a second port was successful.

So what is the Auckland International Airport worth?

It depends on your investment horizon. Are you invested short or long term?

If you are a short term investor who bought your shares last year for as low as $1.90, then you might be wise to accept the CCPIB offer and lock in an exceptional quick buck.

The inverse long term view of course is that within 5 years the value of a single AIA share is likely to be well in excess of the $3.65 offer from the canny Canadians. They can definitely see a good long term prospect, otherwise they wouldn't now be having a second go at the company.

Lets face it, the company is a near monopoly, with the worlds best profit margins for an airport and also a huge owner of undeveloped land and various other revenue streams or businesses outside its core reason for existence.

It is in effect also a mall operator, with a large retail presence and big foot traffic coming past on a 24 hr 7 day week basis and also operates a large car parking facility as part of the airport.

I am going to vote against the CPPIB offer.

Disclosure: I own AIA shares 

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