Local Strife, Falling Profits Make Buyout Less Attractive

Citing a legal technicality in its merger agreement signed in July with leaders of Auckland International Airport, this week Dubai Aerospace Enterprise took its first steps towards backing out of its $1.8 billion offer to take over New Zealand's busiest airport.

Forbes reports Dubai Aerospace alerted the airport Thursday to an apparent breach in the contract agreement, due to Air New Zealand's recent request for a judicial review of new landing charges imposed on airlines flying from Auckland, and Wellington International Airport.

The Dubai fund claims that inquiry amounts to a "prescribed occurrence" that breaches the terms of the original plan. The state-backed group also took Auckland Airport leaders to task for allegedly not doing all they could to ensure a successful outcome to the proposed merger.

Though Dubai likely has a valid point in terms of legality, many feel the ownership group is grasping onto the landing fee fight as a graceful way to pull out of the proposed offer to buy the airport, after the plan received substantial criticism from national politicians and investors.

As ANN reported, Dubai Aerospace needs 75 percent approval from shareholders in Auckland International for the deal to pass muster. However, two local government entities that own a combined 23 percent in the airport haven't thrown their support to the plan... hinting they may actually try to block the deal.

Infratil, a utilities investor, and the New Zealand-owned Superannuation Fund, together own 6.2 percent of the Auckland airport. Combine this with the 23 percent stake cited above, and it may be enough to prevent Dubai Aerospace from gaining enough support for the bid.

Also not helping matters for Dubai Aerospace is local opposition to the plan. Recent polls show 80 percent of Auckland residents opposed the deal, according to the New Zealand Herald.

Of course, local politics may have little to do with it. Auckland's profitability has fallen 11 percent in 2007, with annual net earnings of $65 million... one reason why the airport is asking carriers to pay more to use the airport. In the face of airline opposition, though, it may appear to Dubai the airport isn't likely to pose a return on its investment in the near future.

FMI: www.dubaiaerospace.com, www.auckland-airport.co.nz