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The Auckland Council has made a decision to sell 7 percent of its shares in Auckland Airport, which will reduce its stake to 11.1 percent. This move is part of their plan to decrease their debt and prevent significant increases in rates for the public.
Now, let’s explore the process of selling 103 million shares and discuss the potential buyers. When it comes to selling shares, whether it’s a hundred or a hundred million, the process remains quite similar. The shares are put up for sale, and interested parties are invited to bid. However, with a large number of shares like this, the pool of potential bidders might be limited. To address this, the council has enlisted the services of Melbourne-based firm Flagstaff to help select larger firms to handle the sale. It is likely that well-known international investment firms with global reach, such as UBS, Macquarie, Goldman Sachs, JP Morgan, Citi, and Credit Suisse, will show interest and participate in the bidding process. Additionally, local firms like Forsyth Barr, Jarden Securities, and Craigs Investment Partners may form partnerships with foreign firms to seek potential New Zealand buyers.
Determining the price of the shares depends on the basic principles of supply and demand. When there is strong demand but limited supply, it tends to drive up prices. The current share price of $8.75, valuing the council’s stake at $901 million, serves as a reference point. However, it’s common for larger share parcels to be sold at a discount to ensure there is sufficient interest from buyers. Investment analysts employ various methods, such as discounted cashflows (DCF), price-to-earnings ratios (P/E ratios), and enterprise value-to-earnings before interest tax, depreciation, amortization (EV/EBITDA ratios), to estimate asset values. These calculations and assessments are typically performed by professionals who receive substantial commissions for their work.
Once the brokers have completed their calculations and evaluations, they will actively market the shares to potential buyers. The shares will likely be sold in either one large block or smaller parcels to a range of buyers. It’s important to note that these shares will not be available for purchase through platforms like Sharesies.
As for the likely buyers, specialist infrastructure investors such as Infratil, which already owns a majority stake in Wellington Airport, and investment funds seeking attractive assets for their specialized or diversified portfolios, could show interest. Notably, the NZ Super Fund currently owns 1.3 percent, and ACC owns 2.49 percent of Auckland Airport. Investment funds with smaller stakes typically maintain a passive role, earning dividends while monitoring share price movements to determine the optimal time to buy more shares or sell their existing stakes. Additionally, large overseas investment funds have displayed interest in quality New Zealand assets. Auckland Airport, with its exposure to the rebounding travel industry and significant commercial property holdings sought by retailers, logistics companies, and other businesses, may be appealing to such investors.
It’s worth mentioning that the sale might require approval from the Overseas Investment Office or relevant ministers due to potential political concerns about foreign control of a strategically important business. While minority stake transfers typically proceed without issues, the government may subject this particular sale to closer scrutiny given the sensitivities involved. In the past, there has been an instance where the then Labour government vetoed a Canadian pension fund’s attempt to acquire a 40 percent stake in Auckland Airport in 2008.
Regarding the remaining 11 percent stake held by Auckland Council, it does provide a level of protection against a complete takeover. According to the Takeovers Code, a stake of 10 percent or more would prevent a buyer from gaining full control. However, it’s important to note that most recent takeovers in the country have been carried out through schemes of arrangement