Qantas likely to accept new takeover offer

After sending the private equity consortium headed by Macquarie Bank and TPG back to the drawing board yesterday, Qantas is poised to accept an increased offer of A$5.60 per share this morning.
The executives of Qantas are expected to announce their acceptance of a non-binding conditional offer for 100% of the airline's shares from a private equity consortium at a press conference scheduled for 11am Sydney time. The stock has been placed on hold by the ASX in preparation for the announcement.

The company's board is expected to advise shareholders to accept a revised offer of A$5.60 per share which was apparently negotiated with the buyers last night following Qantas' rejection of the first offer. Yesterday, the Qantas board rejected a A$5.50 per share offer, on the grounds that the conditions of the proposal were too complex.

It is believed the consortium, led by Macquarie Bank and Texas Pacific Group, has agreed to waive a A$100 million break fee that was considered a sticking point in the initial proposal.

It is also believed that shareholders will be offered a special dividend of five cents per share to sweeten the deal.

The other details of the proposal are still scarce. Qantas released a statement yesterday saying the conditions included a requirement for unanimous support by directors and the need to achieve 90% minimum acceptance for the off-market takeover.

The cash price of A$5.60 per share values the national airline at just over A$11 billion ($8.25 billion) or a 9% premium to WednesdayÆs closing price. The highest the stock has traded in the last seven years is A$5.26. Analysts in Australia say the price is high enough to be supported by the majority of shareholders.

ôIt seems ludicrous that the board would reject an offer without first going to shareholders to see what they think,ö said a source yesterday. ôThis is a big asset with not many logical buyers. Everyone is hoping that the board doesnÆt play hardball for too long and we end up with another Coles Myer situation,ö he said, referring to the A$18.2 billion private equity bid for the Australian retail group Coles Myer made by a Kohlberg Kravis Roberts-led consortium in October. The Coles board rejected both an initial bid from KKR and a revised bid without consulting shareholders. Eventually the private equity group walked away from the transaction and Coles shares have since traded down nearly 10% from highs reached in September.

The make-up of the bidding consortium for Qantas was also revealed on Wednesday (December 13). The group is called Airline Partners Australia and consists of three Australian players û Allco Equity Partners with circa 43% of the consortium, Macquarie Bank with less than 15% and Allco Finance Group with 11% - and at least two foreign parties holding the remaining 40%. These foreign parties include Texas Pacific Group and Canadian buy-out firm Onex but there are other parties that remain unnamed because, according to the Airline Partners announcement, no single foreign investor holds more than 15% of the voting interests. The limit on individual holdings has been structured to comply with special legislation governing the ownership of Qantas which also limits foreign investors to holding 49% of the airline.

Analysts have been speculating on the financing package that will be used to fund the acquisition. ôItÆs our understanding that several banks tendered to take part in the debt financing including Citigroup, Credit Suisse, Calyon, Royal Bank of Scotland, Morgan Stanley and Goldman Sachs,ö says a source. ôWe believe that Calyon and Morgan Stanley will be the lead managers. The equity component will come in the form of cash injections from each member of the consortium and possibly a listing of a portion of the business.ö

Allco Equity Partners has told the Australian Stock Exchange that should the Qantas transaction proceed it will raise A$600 million to A$700 million in funds predominately through an entitlements issue.

Shareholders in Qantas seemed to be willing the deal along on Wednesday by dumping shares to make the Airline PartnersÆ bid look more attractive. The stock lost 2.68% or 14 cents to A$5.09. It traded as low as A$4.93 during the day.

The press conference this morning will be conducted by chairman Margaret Jackson and chief executive Geoff Dixon.

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