Overseas investment decision for case 200810034 - Canada Pension Plan Investment Board

100 percent - Canada, Canadian Public

The application for consent has been declined as the relevant Ministers were not satisfied that all of the criteria in section 16 of the Overseas Investment Act 2005 had been met. The relevant Ministers provided written reasons for their decision in a document, "Reasons for Decision by relevant Ministers", which was made public on 11 April 2008.

Background to the Investment:
Canada Pension Plan Investment Board (CPPIB) proposes to acquire a 40 percent shareholding in Auckland International Airport Limited (AIAL). CPPIB currently holds approximately 0.8 percent of the shares in AIAL.

AIAL owns and operates Auckland International Airport. Its objective is to provide for the commercial aviation needs of the Auckland region for the next 50 years and beyond. AIAL is a diversified business with investments in property, retail and car parking. Its investment property portfolio supports and provides services for the airport community including the airport's commercial park, and shopping centre.

The Investment:
The proposed Transaction comprises two steps:

1. An all-cash partial takeover offer, made by NZ Airport NC Limited (NoteCo), a wholly-owned subsidiary of CPPIB, to all AIAL shareholders of $3.6555 per share to take CPPIB's holding in AIAL to 40 percent. NoteCo lodged a takeover notice in accordance with Rule 41 of the Takeovers Code on 16 November 2007 (Takeover); and
2. As soon as possible after the successful completion of the takeover, it is CPPIB's intention that a proposal would be put to all AIAL shareholders under which AIAL would amalgamate with NZ Airport HC Limited (HoldCo), a wholly-owned subsidiary of CPPIB, under the process prescribed in Part XIII of the Companies Act 1993 (Amalgamation).

Under the proposed Amalgamation, HoldCo would be the surviving entity and would succeed to all of the property, rights and obligations of AIAL. CPPIB and other AIAL shareholders would hold shares in HoldCo's ultimate holding company, NZ Airport HCP Limited (HoldCo Parent). On the effective date of amalgamation, HoldCo Parent and HoldCo would change their names to Auckland Airport Limited and Auckland International Airport Limited, respectively.

The consideration AIAL shareholders would receive in relation to the Amalgamation would be a combination of cash (paid by HoldCo Parent) and stapled securities (consisting of a loan note (issued by NoteCo) stapled to an ordinary share (issued by HoldCo Parent). The Amalgamation will be conditional upon the necessary resolutions of AIAL shareholders and a favourable ruling from the Inland Revenue Department.

At the conclusion of the Transaction, CPPB would enter into a Cooperation Agreement with HoldCo, under which CPPIB would agree among other things, that:

1. It supports the vision and strategy for AIAL's business recorded in the five year corporate plan for the financial years from 2008 to 2012 inclusive adopted by the board of AIAL and entitled "Our Strategy for New Zealand's Airport";
2. It would share with NZ Airport HC Limited (which will be the surviving entity following the amalgamation) the experience and know-how of best practice, strategy and performance optimisation it has gained from other investments;
3. It would work with NZ Airport HC Limited on growth opportunities for its business; and
4. It would work together with NZ Airport HC Limited to pursue opportunities for investment in, or the development and management of, airports to the extent that HoldCo wishes to pursue such opportunities.

CPPIB and NoteCo have entered into or will enter into a revised Deed relating to voting on resolutions under which they will undertake in favour of AIAL and AIAL shareholders that they will not exercise the votes attaching to more than 24.9 percent of all the issued voting shares in AIAL on all AIAL shareholder resolutions (or any other company in which they hold securities as a result of the Amalgamation), other than resolutions which affect the rights attaching to CPPIB's shares.

Rationale for the Investment:
CPPIB advised that an investment in AIAL's business and assets is consistent with CPPIB's long-term investment principles because AIAL's business and assets are expected to provide stable long-term returns, AIAL operates in a strong regulatory environment, AIAL has a relatively low technology replacement risk and possesses minimal substitution risks being New Zealand's premier gateway airport. Infrastructure investments, such as AIAL, play a key role in CPPIB's strategy because their underlying value tends to rise along with inflation. This characteristic makes infrastructure investments a good match for the long-term nature of the Canada Pension Plan's (CPP) net liabilities given that CPP benefits are linked to inflation.