Forum Archive Index - September 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Peter, 

I saw your post back in August, and hoped it would go away.  But 
there it was still stubbornly sitting in my inbox.  So now is that 
time to answer it! 
>
>
> When AIR purchased the balance of Ansett they paid $744M odd in cash
> and it was stated that after the first payment Air NZ would make a
> second payment of Air NZ shares equal to 10.5% of the shares on
> issue at the time of completion, adjusted to take into account
> subsequent changes to the capital structure.
> 
> No date was given as to when the second payment was to be made but
> some reference was made about 2 - 4 years time.
> 
> I take it that this arrangement still stands. I have not seen
> anything to say otherwise. As such does AIR still owe News
> Corporation the equivalent of 80 million AIR shares?
>
>


80 million, or however many shares equate to 10.5% of the company 
once the upcoming rights issue is completed.  You are the thorn in 
the side of all AIR analysts Peter, but, once again, you are right on 
the button. 


>
> 
> Maybe Snoopy or some other enlightened person could make some
> comment about whether AIR still owes something for Ansett and if so
> whether it complicates any recapitalisation plans.
> 
>


The short answer to your question is "yes" and "yes".

For the long answer I have gone to the cardboard box in the back of 
my garage which I term my "Library of Business Shame".

I pulled out a document titled
"Special Meeting of Shareholders" dated 4th April 2000
all on why the purchase of Ansett by Air New Zealand was such a good 
idea ;-( (!)

Here is the complete text of the section entitled: "Consideration".

"3.5  The consideration for the remaining 50% of Ansett shares 
comprises:
(a) an initial cash payment of $NZ734m and 
(b) the Deferred Consideration."

....That (b) is what you are talking about Peter.

"3.6 The deferred consideration is based on the value (at the time of 
the Deferred Consideration is required to be satisfied) of 10.5% of 
the total Air New Zealand shares on issue at 18 February 2000 
(subject to adjustments for certain events in paragraph 3.14).   
Settlement will be in the form of either Air New Zealand shares or 
cash."

"3.7 The deferred consideration is payable at any time during the 
period commencing on the date of the second anniversary (I 
calculate that at 30th June 2002) and ending on the date of the 
fourth anniversary (30th June 2004 by my figuring) of the completion 
of the transaction ("The Deferred Payment Period").  The deferred 
consideration could be payable prior to the second anniversary in the 
event of interests other than Brierley Investments limited acquiring 
more than 50% of the shares in Air New Zealand." 

"3.8 Each of Air New Zealand or News has the right to trigger 
settlement of the Deferred Consideration.  If neither party requests 
settlement during the deferred payment period, settlement will occur 
at the end of the deferred payment period."

"3.9 If News triggers settlement, Air New Zealand must either satisfy 
the Deferred Consideration by issuing Air New Zealand shares to News 
or it may elect to satisfy the deferred consideration in cash."

"3.10 Assuming News triggers settlement, if the Deferred 
Consideration is to be satisfied by way of the issue of shares, the 
intention is to issue 30,389,623 A Ordinary shares and 29,197,839 B 
Ordinary shares in Air New Zealand ("the Deferred Shares").   These 
parcels represent 10.5% of the company's shares on issue as at 18 
February 2000.   Alternatively Air New Zealand may satisfy the 
Deferred Consideration in cash."

....The above paragraph is interesting as News, being a foreign 
company, is not allowed to own "A" shares.   So I guess there is an 
underlying presumption that those A shares issued to News would be 
immediately on sold to New Zealand interests.

"3.11 If Air New Zealand triggers settlement, it must issue 105.26% 
of the Deferred shares to News.  This represents an effective issue 
discount of 5%.   Air New Zealand does not have the option to 
satisfy the Deferred Consideration in cash if it triggers 
settlement."

"3.12 If the Deferred Payment Period expires, Air New Zealand may 
elect to satisfy the Deferred Consideration by the issue of 105.26%  
of the Deferred Shares or by way of cash.   The cash payment would 
not reflect the 5% effective issue discount which would apply to the 
issue of shares."

"3.13 In the event that Air New Zealand triggers settlement, or the 
Deferred Payment Period expires and Air New Zealand elects to issue 
shares, News would be entitled to 31,989,077 A Ordinary shares and 
30,734,567 B ordinary shares."

"3.14 The Agreement for Sale and Purchase allows for the number of 
deferred shares to be issued to be adjusted for any change in the 
share structure which would impact on the value of the Deferred 
Shares.   Accordingly any subdivision or consolidation of Air New 
Zealand's shares, bonus issues, restructuring of shares into a new 
class of shares, discounts or premiums on rights issues, other issues 
or share buybacks, extraordinary distributions or any other change in 
the Company's share structure may result in an adjustment in the 
number of deferred shares issued to News."

"3.15 Settlement by cash will represent the market value of the 
deferred shares, based on the weighted average price (by volume) for 
which Air New Zealand securities were traded on the NZSE and 
Australian Stock Exchange during a 90 day period.  This calculation 
will disregard certain trades that are not in the ordinary course of 
trading" 

There are a couple of consequences to note from all of this.  

Under the apparently scuttled "Qantas deal", the Deferred 
Consideration would be triggered early under paragraph 3.7.   It 
would also be triggered early by the same clause if Singapore 
Airlines put enough cash into AIR to lift their holding to 49% by 
placement, but some of the A shareholders did not take up all their 
rights in the subsequent rights issue (effectively putting Singapore 
Airlines over the 50% barrier).  Further, both of these deals might 
also raise bilateral international landing rights issues.

If Singapore Airlines were to be granted permission to buy 49% of 
Air NZ/Ansett now it is clear that in two years time they would have 
to buy a further tranche of 5% of the issued shares from News 
Corporation if they wanted to maintain that percentage 
ownership position.  

None of this solves the problem of finding a home for that extra 5% 
of 'A' shares that are created as part of this deal.   I don't see 
any consortium of New Zealand businessmen with their hands up.  
Perhaps the National-ACT coalition government of 2004 might have to 
buy it?  SNOOPY



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