July 23 (Bloomberg) -- Dubai's government, using wealth generated by a three-year rally in crude oil, agreed to buy a controlling stake in Auckland International Airport Ltd., New Zealand's busiest, for as much as NZ$2.6 billion ($2.1 billion).

Auckland Airport directors recommended the offer from state-controlled Dubai Aerospace Enterprises, worth up to NZ$3.80 a share, 15 percent more than before the offer was announced. The offer values Auckland Airport at NZ$5.6 billion including stock, cash and debt, the company said in a statement today.

``It is in a region and in an area where we think there will be increased tourism and passenger growth,'' DAE Chief Executive Officer Bob Johnson said in a telephone interview from New Zealand today. The company would finance its investment in Auckland Airport through a ``combination of debt and equity,'' Johnson said. He declined to be more specific.

Investors in the United Arab Emirates, the third-biggest producer in the Organization of Petroleum Exporting Countries, spent $60 billion on assets such as ports and telephone companies during oil's 80 percent rally the past three years, Bloomberg data show. The airport handles 70 percent of arrivals to New Zealand and could be a regional hub for Dubai's Emirates.

Possible Stopover

``They could use Auckland Airport to build and expand their presence in the region to the benefit of Emirates,'' said Paul Richardson, who helps manage $2 billion at BT Funds Management in Auckland, including Auckland Airport shares. ``Emirates could use it as a stopover on the route from the Middle East to North America.''

The Persian Gulf sheikdom of Dubai, in the United Arab Emirates, earmarked more than $82 billion of profits from soaring oil prices for investment in the aviation and aerospace industry to create a transport hub for the region.

``The Dubai government has money to spend on aviation and this must have looked like a good investment,'' said Richard Pinkham, an analyst at the Centre for Asia Pacific Aviation in Singapore.

Auckland Airport shares rose 10 cents, or 3 percent, to NZ$3.41 at the 5 p.m. market close in Wellington. Earlier, it traded as high as NZ$3.50. The stock surged last month after Canada Pension Plan Investment Board offered NZ$3.10 a share for the company, and the two largest shareholders received approaches about their stakes from other unidentified parties.

A New Company

Under the takeover proposal, a new company will be formed to buy the Auckland Airport. Existing shareholders will be offered NZ$2.34 cash plus shares in the new company, each with an associated convertible loan note. The so-called stapled securities are valued at NZ$1.39 each.

Shareholders will have the option of taking more cash or more stapled securities, which will determine Dubai Aerospace's final stake at between 51 percent and 60 percent.

Dubai Aerospace will invest NZ$2.3 billion in the new company and provide another NZ$300 million to buy stapled securities from investors who prefer more cash.

Existing management will remain in place, according to the airport's statement. Shareholders will be asked to vote on the proposal in November and the deal is also subject to approval by the Overseas Investment Office, which may take until March next year to make a ruling.

Other Proposals

First NZ Capital and Credit Suisse are advising Auckland Airport. Deutsche Bank AG is advising Dubai Aerospace.

Auckland Airport is not restricted from considering competing proposals and making a recommendation to shareholders if another proposal is better, it said.

Manukau City Council, which owns 10.05 percent, is considering its response, Mayor Barry Curtis said in a statement e-mailed to Bloomberg News.

``I am personally totally opposed to a foreign company obtaining a controlling interest,'' he said. ``It should not be subjected to any influences which could be detrimental to the social and economic interests of New Zealand.''

Johnson of Dubai Aerospace said he was confident Curtis would change his mind. ``We are going to meet with him tomorrow and I expect he will see the benefits of this proposal,'' Johnson said.

Auckland City, which owns 12.8 percent of the airport, last week sought submissions from the public on what it should do with its stake after being approached. The council had no immediate comment to make on the proposal, a spokesman said.

Aviation Services

Dubai Aerospace was formed last year with a goal to become a $15 billion airport and aviation services company. It has competed against Macquarie Bank Ltd. and Babcock & Brown to buy airport companies without success.

``Macquarie and Babcock have been acquiring airports quite aggressively,'' said Rickey Ward, who helps manage the equivalent of $330 million at Tyndall Investment Management Ltd. in Auckland. ``Dubai has had to be aggressive as well.''

Dubai Aerospace likes Auckland Airport's role in the Asia- Pacific, Kjeld Binger, who heads the airports unit, said on a conference call.

``New Zealand's tourism industry is extremely important,'' he said. ``We will have the opportunity to improve that through our global presence.''

Emirates flies to Auckland and sponsored New Zealand's entry in the America's Cup yachting regatta this year.

Standard Aero

In April, Dubai Aerospace agreed to purchase Standard Aero Holdings Inc. and Landmark Aviation, two U.S. aviation maintenance companies, from Carlyle Group for $1.8 billion. The deal is under review by U.S. regulatory authorities.

Along with Abu Dhabi's Mubadala Development Co. and Istithmar, Dubai Aerospace bought 90 percent of Swiss-based aviation technical services provider SR Technics for $1.3 billion last September.

Dubai-owned DP World's purchase of terminals at six U.S. ports in 2006 triggered a furor among U.S. lawmakers such as Senator Charles Schumer of New York, who said the deal would compromise national security. DP World completed the sale of the facilities to AIG Global Investment Group on March 16, fulfilling a pledge to jettison U.S. operations.

The Auckland deal may face political opposition in New Zealand. Lawmaker Winston Peters, who is foreign minister and head of the New Zealand First Party, today said the company's shareholders should oppose ``the unnecessary sell out and sell off of yet another New Zealand plum to a foreign-owned company.''

Dubai Aerospace's shareholders include Emaar Properties PJSC, Istithmar PJSC, Dubai Airport Free Zone Authority, Dubai International Capital LLC, DIFC Investments LLC, the government of Dubai and Amlak Finance PJSC.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net; Massoud A. Derhally in Dubai, United Arab Emirates, at mderhally@bloomberg.net

Last Updated: July 23, 2007 07:58 EDT