What can still go wrong at Air NZ

Friday 12th October 2001

The government stepped in, Air New Zealand was saved and the people rejoiced.

That seemed to be the happy-ever-after story last week but things were not over.

The deal between the government, Air New Zealand, Singapore Airlines and Brierley Investments comprised a shareholder support agreement and a 28-page heads of agreement.

Practical steps required to implement the proposals of the overall rescue package were detailed in the heads of agreement document. They included provision for shareholder meetings, a matter glossed over in most discussions of the deal.

Air New Zealand will hold a shareholders meeting no later than December 31, or such later date as the Crown and the company may agree.

The company will provide shareholders with all "ancillary documents (including an explanatory memorandum, independent expert's report and board recommendation)" as may be required under the various acts and other rules governing such matters.

The meeting will discuss resolutions to:

reclassify the A and B shares into one class of shares;

approve the issue of the convertible preference shares ("and, to the extent necessary, the issue of ordinary shares pursuant to the terms of the convertible preference shares") and the new ordinary shares to the Crown; and

adopt a new constitution in a form approved by the Crown.

There should be few problems getting the first two resolutions passed, depending on the wording of the constitution and assuming Brierley Investments and Singapore Airlines can vote their shares.

The adoption of the new constitution is a different matter.

That requires a special resolution, with at least 75% approval from shareholders who vote on the proposal.

Any institutions remaining on the register would probably vote for a new constitution but it still needs a 75% majority. The current main shareholders do not have that percentage.

Remaining shareholdings could be all over the place by the meeting time.

Nobody, whether as a party to the agreement or elsewhere should assume the adoption of a new constitution "in a form approved by the Crown" is just a formality. It can be assumed the extra shareholders needed to reach 75% will be common sense people or institutions but they will also be prudent and give the proposed constitution careful examination.

There could be an interesting sideshow at the meeting. Resolutions to issue shares to the Crown would open up discussion about why that was necessary. That, in turn, should allow an examination of what happened earlier to create the "why" and thus to "who," meaning the personal or collective responsibility of individuals.

The Air New Zealand agreement had another potential fishhook in the heads of agreement's first schedule, which set out conditions precedent to completion of the arrangement.

The Crown can waive conditions but they obviously apply until so waived.

Among other matters, it was a condition that:

either no shareholder of Air New Zealand has given notice under section (1) of the Companies Act 1993 requiring Air New Zealand to buy its shares within 12 working days after the meeting; or buy its shares;

if one or more Air New Zealand shareholder has given notice such a notice, the shares held by the relevant shareholder comprises not more than 2% of the total of A and B shares as at September 30.

The company had 756.82 million shares at September 30, so 2% was 15.14 million. The condition precedent would be breached if holders of that number required the company to buy the shares.

The Crown can waive any condition, so a repurchase demand would not necessarily shoot down the deal.

Conversely, the Crown has the right to terminate the agreement if a condition precedent was not fulfilled at the appropriate time. That seems an academic point, given the government's apparent commitment to the airline.

The government and the main shareholders should be careful they do not take the independent shareholders for granted. It is unlikely 25% of the voting shares could be organised against, for example, a new constitution but stranger things have happened.

The constitution needs Stock Exchange approval and must comply with the general law before it even gets on the agenda, so it could have a smooth passage. Even so, the dealmakers would be sensible to consider possible stroppy shareholders. The latter could surprise and collect sufficient votes to affect resolutions.

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