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Auckland Airport Board ends discussions with CPPIB

Auckland Airport Board ends discussions with CPPIB

The directors of Auckland International Airport Limited (Auckland Airport) today announced that discussions with Canada Pension Plan Investment Board (CPPIB) in relation to a proposal for CPPIB to acquire a significant interest in Auckland Airport have ceased.

A majority of directors of Auckland Airport do not believe that pursuing the proposal would be in the best interests of shareholders or the company and therefore will not be recommending the proposed transaction. 

One director, Michael Smith, is of the view that the proposal is in the best interests of shareholders and should have been put to shareholders with a positive recommendation. 

Chairman of the Board of Auckland Airport, John Maasland, said the proposal would have involved an amalgamation and the creation of a newly listed airport company.  Under the deal CPPIB would have owned between 39% and 49% of this new company.

“If the amalgamation proposal went ahead existing Auckland Airport shareholders would have retained between 51% and 61% of the new company and maintained an investment in the restructured company.”

“The Board needed to be certain it was a proposal we would recommend and, on that basis, we needed to consider a range of related factors.

“Those factors included the proposed structure, future growth prospects, risk profile and the long-term value of the new company, as well as the price offered to shareholders and the likely market trading price of the new securities.”

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“After serious consideration of all of these matters the majority of directors have formed the view that the proposal would introduce an unacceptable increase in risk which would most likely impact the long-term value and prospects of the company in the future.”

One area of concern was the significant increase in the level of debt within the CPPIB proposal which would have seen the company’s debt move from $911 million as at 30 June 2007 to $2.6 billion within a five year period. 

In addition, the terms of the new securities and the debt financing proposed by CPPIB would have reduced the company’s financial flexibility and imposed stringent “ring-fencing” requirements limiting the company’s ability to grow its business in line with its strategic plan. 

Standard & Poor’s has confirmed that the increased level of debt and these factors would have seen the company’s credit rating downgraded upon the proposal being implemented from A to BBB- which is at the bottom end of the investment grade rating.  

Finally, as we have said previously, the Board would have preferred a proposal that not only offered current and future value for shareholders, but also introduced additional expertise that would enhance the airport company’s plans for growth and development.

While CPPIB would no doubt have been a committed long-term investor, they are clearly not able to bring industry or tourism experience – which makes them a less attractive option when compared with the DAE proposal which the Board unanimously recommended in the absence of a superior proposal.”

The notice of meeting with respect to the company’s annual meeting to be held on 20 November will be mailed to shareholders on 5 November.  As previously advised, three new candidates have been proposed for election to the Board.  It has now been determined that Joan Withers will retire by rotation and, being eligible, will offer herself for re-election.  Consistent with his intention conveyed to the Board last year, Michael Smith will retire from the Board at the annual meeting following nine year’s service.

Maasland said the company will continue to pursue its strategy outlined in its recent annual report to become New Zealand’s airport. 

“This includes a strong commitment to upgrade, expand and grow the Auckland Airport business in the best interests of shareholders, the company and the wider community.”

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