Tax Move May Halt Takeover Of New Zealand Airport

by Mary Swire, Tax-News.com, Hong Kong

27 February 2008

The recent announcement by the New Zealand government that legislation will be amended to prevent revenue loss associated with certain types of stapled securities has put a takeover bid for Auckland International Airport in jeopardy, it has emerged.

The Canada Pension Plan Investment Board is seeking to take a 40% stake in Auckland Airport in a deal with a cash component and stapled securities, comprising a mix of ordinary shares and tax deductible convertible notes. However, a surprise announcement by Revenue Minister Peter Dunne and Finance Minister Michael Cullen on Monday has cast serious doubt on whether the deal can go ahead.

“Stapled stock instruments are relatively common overseas but until recently have not been used much in New Zealand, and our tax rules have yet to catch up,” the ministers explained, continuing:

“The issue arises from the fact that by using stapled stock instruments with debt components, companies can pay tax-deductible interest to shareholders as a substitute for dividends. The issue becomes particularly acute if the instruments are issued to foreign investors in New Zealand companies."

Any change in the law regarding stapled securities would be effective from the date of the government announcement. The ministers revealed that the decision was made without prior consultation because it was "a matter of urgency".

CPPIB has offered NZ$3.6555 a share for the airport, reducing to NZ$3.5980 as a result of a NZ$5.75 cents a share interim dividend to be paid next month.

The CPPIB bid was worth some NZD1.8 billion (USD1.4 billion) and valued the airport company at NZ$4.46 billion (US$3.6 billion).

While some analysts believe that CPPIB has spent too much on putting the bid together to pull out of the deal, others are of the view that the deal no longer makes sense, since stapled securities were a key component.

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