Qantas bid stalls as share acceptances drop

Hedge funds sit tight on their Qantas shares as the deadline for the new offer from Airline Partners Australia draws near.
With just over two weeks to go until the new offer from Airline Partners Australia to buy Qantas expires, the private equity consortium appears to be having trouble winning over shareholders, with the number of shares committed to the deal actually dropping since last week.

Under the new offer announced on Thursday last week, investors that had committed their shares to the institutional acceptance facility could withdraw them and thatÆs just what they have done.

Seven days ago, Airline Partners held a total 30.06% of Qantas through shares it holds directly and shares committed under the facility. Yesterday, that level had dropped to 28.86% as some investors withdrew from the facility. Airline Partners reports that it now holds 12.15% of shares directly (up from 11.67% last week), and 16.71% via the facility (down from 18.39% last week).

Under the terms of the new deal, the consortium û which includes Texas Pacific Group, Macquarie Bank and Allco Equity Partners û will now declare their offer unconditional once acceptances reach 70%, compared to the 90% level outlined in the initial proposal. The acceptance level was dropped after at least two institutional investors who own significant shares in Qantas û Balanced Equity Management with a 4% share, and UBS Global Asset Management with a 6% plus share û indicated that they may not support the deal.

The news of the backward slide yesterday puts the group 41.14% shy of its target.

At this stage, analysts are relaxed about the uptake. ôThere is speculation that hedge funds currently hold about 40% of QantasÆ stock and once they tender their shares the 70% level will be reached,ö says an analyst with an investment bank in Sydney. ôNobody expects these funds to hold onto their shares and just because they havenÆt already transferred them to the acceptance facility isnÆt unusual. Hedge funds tend to wait until the last moment to make their move.ö

Airline Partners has explained the dip in the number of shares tendered by saying that some institutions had withdrawn from the facility in order to sell their shares on the market û at a discount to the offer price of A$5.45 a share. ôThis could be a foreign currency play,ö says the analyst. ôThe Australian dollar has hit new highs in recent days and some investors may have taken the view that it has reached its peak.ö

If acceptances donÆt start to flow by the end of next week, Airline Partners may be forced to extend the deadline on the offer again. The current expiry on the offer is Friday, May 4.

Yesterday Qantas shares closed at A$5.37 a share.
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