UPDATE 2-NZ govt rejects $1.4 bln Auckland Airport stake bid

(Updates with details, comments)

By Adrian Bathgate

WELLINGTON, April 11 (Reuters) - New Zealand's government rejected on Friday a NZ$1.8 billion ($1.4 billion) bid by a Canadian fund for a stake in Auckland International Airport Ltd (AIA.NZ: Quote, Profile, Research, Stock Buzz), saying it would not benefit the country, sending the airport operator's shares down 11 percent. The Canada Pension Plan Investment Board (CPPIB) said it would not pursue the bid plan for the airport, which handles 70 percent of the country's international traffic. The government had been expected to reject the application.

Analysts said that with two partial takeovers having failed in the past year, and the government tightening investment rules to inhibit foreign control of strategic assets, the airport's stated goal of attracting a cornerstone shareholder is now facing an uphill struggle. "The key to it is that most of the players in that space wouldn't want to just have a passive shareholding," said Macquarie Investment director Arthur Lim.

Most institutional investors would want a significant stake, above the 25 percent level requiring government approval, and therefore would be likely to incur a government veto, Lim said.

The airport would revisit its plans to attract the cornerstone investor in the light of the government's decision, chairman Tony Frankham said in a statement. He did not give further details.

Shares in the airport, a top-10 company, fell as much as 11.4 percent, before last trading down 9.4 percent at NZ$2.13. Some investors had believed the Canadians would return with a smaller offer rather than walk away.

Shareholders had supported the deal, with 63.5 percent selling into the partial offer at NZ$3.5980 a share by its March 13 deadline and 58 percent of voting shareholders approving it.

Despite pursuing the airport for almost a year, CPPIB said it was happy to walk away. "We do mergers and acquisitions every day. Some we win, some we lose. Generally we lose more than we win," vice-president Graeme Bevans told Reuters.