Forum Archive Index - September 2001

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

Greg wrote:
> 
> 
> 
>According to Cushing, the financing package at the time was for
>A$580m (then about NZ$745m), followed by shares equal to 10.5% of
>market capitalization "at the time of completion". The 10.5% was to
>follow 2-4 yrs after the acquisition, and given market values at the
>time, was worth about A$100m.

> 
>Bottom line - AIR still owes News 10.5% of the Air NZ side of the
>business.
> 

>However, I 'm not sure what is meant by "time of completion" - is
>this at the time of acquiring Ansett, or at the time the second
>payment is made?
> 
>

First point: the presumption of this question is incorrect.  

There are actually 3 payments that Air New Zealand needs to make to 
complete acquisition of Ansett.   The first was acquiring 49% of 
Ansett from TNT.  The second was acquiring the remaining 51% from 
News Corporation, and the third is the "top up" to News.

Now quoting from the "Special Meeting of Shareholders" notice:

"1.2 The company holds 50% of the shares in Ansett Holdings Limited 
("Ansett").  The company has entered into a conditional agreement to 
acquire the remaining 50% of the shares in Ansett from subsidiaries 
of "News".   Consideration is to consist of *a cash payment of 
$A580million payable upon completion* *and a deferred amount*..."

It is quite clear from this that "completion" means after the second 
payment of $A580m to News Corporation.

>
>
> Snoopy's post refers to "10.5% of the company's shares on issue as
> at 18 February 2000."  
> 
> If the 10.5% relates to the value of AIR at the time of acquisition,
> surely that will be a double whammy, particularly if the payback is
> triggered over the next few weeks as part of refinancing, whilst
> Air's share values are so low. This would be a lot of shares (the
> limited extent of my quantitative analysis).
>
>

I think your fears on this specific point are groundless Greg.  News 
will get 10.5% of the company (or the cash equivalent) but it will be 
at whatever value the company has on the market at the time of the 
deferred settlement. 

But there is a somewhat alarming twist "waiting in the wings" (sic) 
should Ansett be forced into liquidation.  

from p8 of "Special Meeting for Shareholders"

"In this Appendix the term "Extraordinary Event", means in general 
terms, a period of non-quotation, suspension or delisting of Air New 
Zealand shares, a material breach by Air New Zealand of the terms of 
the agreement with News, a change of control of Air New Zealand or 
the Company suffering an insolvency event"

"In certain cases Air New Zealand may elect, or in an Extraordinary 
Event be required to settle the Deferred Consideration by payment in 
cash.  The cash payment will ordinarily represent the market value of 
the Deferred Shares, based on the weighted (by volume) average 
price for which Air New Zealand securities of each relevant class were 
traded on the New Zealand and Australian Stock Exchanges during a 
90-day period.  That calculation will disregard certain trades that 
are not in the ordinary course of trading. In certain Extraordinary 
Events the basis for calculating market value will change."

It seems to me that if an "Extraordinary Event" has not already 
occurred we are on the brink of one.   Consequently Air New Zealand 
can expect a cash demand from News Corporation for some unspecified 
amount ($100m?) at any time.  This will have to be factored in to any 
restructuring package.

>
>
> And according to the 5% discount clause:
> This looks like if Air NZ triggers payment in equity, it has to pay
> the 10.5% plus a bit more as a penalty?!
>
>

It is clear that "News" ultimately wants cash, not Air New Zealand 
shares.  I am sure that the 5% discount was agreed to to cover the 
cost of placing those shares with other buyers, not as a 'penalty' as 
such.

>
>
> I'm concerned that any further money spent resuscitating 
> Air is sending good money after bad.
> But then, there may be little choice if we're
> to get some money back. What do sharechatters think?
> 
> 

Personally I think that the government will end up with a stake in 
Air New Zealand as a result of the underwriting process.   Many small
shareholders will 'panic' and not take up their rights.

The government will then be in the same position as you.  And over 
the short to medium term the government will make sure that the 
restructuring package is done so that Air NZ can trade their way out 
of difficulties, and the government can get their investment back.   
I would say that if the government is satisfied with the security of 
its position (short to medium term), then so should you be. SNOOPY



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