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QAN - Qantas takeover by MBL

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I,m beginning to see a "whiff" of Alan Bond in the operations of MBL and it's offer for Qantas. Some one is going to get badly burnt on this one and I can see Qantas going the same way as Ansett in the not too distant future. Another Aussie icon will go down the drain. To me the figures don't add up. But then as I often say "I'm often wrong" (and sometimes I'm glad I am.)
What am I missing on this one?
 
I,m beginning to see a "whiff" of Alan Bond in the operations of MBL and it's offer for Qantas. Some one is going to get badly burnt on this one and I can see Qantas going the same way as Ansett in the not too distant future
Click to expand...

Can't say I was around in Alan Bonds time (possibly we worth reading up on..).

But I started in shares reading about Warren Buffet who lost a few $100m on an airline play in the early 90's.

Funding an airline purchase through debt (no one buys with their own money these days fo they?) is particularly dangerous IMO coz airline cash flow can disappear in a heartbeat through any of:
- a spike in oil which makes up a third of their costs (maybe QAN hedges though?),
- a terrorist attack
- recession/downtrun in consumer spending.

The fed gov't has so far protected QAN from competition from Singapore Airlines, who actually feed something like 15-20% of the domestic market from international inbound flights. The gov't bluster about competition is a load of crap. And there was quite some publicity when they again refused SIN to fly the lucrative Syd-LA route. They could lose this protection as a private co according to some media reports.

It's a very very risky move IMO...
 
An intersesting article from Saturday's Australian;

http://www.theaustralian.news.com.au/story/0,20867,21017655-5001641,00.html

To quote:
"Dixon is one of the most astute managers in the country. That performance has rarely translated into Qantas's share price because, as Dixon is often at pains to tell us, Qantas still barely makes its cost of capital. But Qantas is one of the three most profitable airlines circling the globe. And certainly the least protected. Which is why private equity wants Qantas. Dixon has a great management team and private equity has the right answer to his problem: simply lower the cost of capital."

Duc, from your analysis, does this make sense? Can going the private equity route lower the cost of capital and make QAN a better run company?
 
Grilla

Duc, from your analysis, does this make sense? Can going the private equity route lower the cost of capital and make QAN a better run company?
Click to expand...

In theory yes it can make QAN a *profitable* LBO.

In theory this is the underlying purpose of an LBO, to find public companies that are undervalued by the market based on sentiment, or underappreciated assets, and purchase those assets utilizing debt, that still represents a cheap source of capital.

The purchased assets require a stable cash-flow to service the debt, and surplus assets are usually sold to reduce the interest payments on the debt. Costs are ruthlessly cut [jobs etc] and eventually the business is resold via an IPO back to the public.

KKR, the premier LBO business showed returns circa 50% compounded over many years following this basic strategy. [not including fees which added substantially to the partners returns, but not the investors]

MBL, will take the fees, investors within the Fund will reap the returns, assuming all goes well.

QAN currently returns 4.3% on capital, thus a cost of capital that exceeds 4.3% is doomed to lose money unless that earnings rate can be dramatically improved. Junk bonds are circa 10%+

For all the previously cited reasons, this is a real throw of the dice, as fuel hedging in essence provides the Net Profit, get that wrong, and QAN will be bankrupt inside of 3yrs

jog on
d998
 
Is anyone else surprised by QAN's share price. I sure wouldn't be hanging around for an upside of 20c.
This announcement might give them some more competition.

Quote
Airfare war looms as Tiger roars

Scott Rochfort
February 9, 2007 - 11:22AM
AdvertisementAdvertisement

Singapore Airlines backed Tiger Airways has announced its plans on becoming Australia's third domestic airline by late 2007, sparking expectations it will trigger the mother of all low-cost domestic airfare wars.

In a sign Tiger is intent on smashing the cosy duopoly enjoyed between Virgin Blue and Qantas-Jetstar, its chief executive Tony Davis, said in a statement: "Fares are too high in Australia. We see the opportunity to deliver consistently low fares on all our routes.''

It is expected to take Tiger at least six months to receive an Air Operators Certificate to allow it to fly domestic flights.

Mr Davis told smh.com.au Tiger would offer "single digit'' one-way fares for its domestic launch.

The airline already offers $8 one-way fares from Darwin to Singapore and is currently advertising S$21.50 ($18) one way fares from Perth to Singapore for the launch of this service next month.

Out of its homebase in Singapore, there is a joke around aviation circles that the airline at times can offer a ticket for the same price as a six pack of Tiger beer. The company has offered S$1 fares in the past.

Tiger is yet to detail which cities it hopes to service. The airline is running a poll for Australians on its website, asking them where they would like to fly.

"We're looking at the whole country. Our objective is volume. It's not yield,'' said Mr Davis.

When asked to respond to Qantas deputy chief executive Peter Gregg's comments that Jetstar would continue to have the lowest costs for any Australian story, Mr Davis said: "Good Luck, good luck.''

"We are committed to having the lowest base in Australia and we are committed to having the lowest fares in Australia,'' he said.

"Our business model is about sustainable low fares. It's in our DNA, it's what we do.''

Tiger's business model is loosely based on the Europe's largest low-cost airline RyanAir, whose founders helped set up the airline. "Our business model is that we give consumers the lowest possible airfares.''

"Australians love our model and are supporting it already in their thousands. We are now keen to extend that model to the overpriced domestic market,'' said Mr Davis referring to the success of Tiger's services into Darwin.

The airline was established in 2004 by Singapore Airlines, the founders of Irelands's Ryanair and a private equity form Indigo Partners to tap into the fast growing South East Asian low cost airline market.

The airline hopes to fly five A320s domestically this year, and employ 1000 staff "both direct and indirect'' in Australia.

Tiger is also expected to test the nerves of unions, given signs it could seek individual workplace agreement. When asked if Tiger would seek to establish union endorsed enterprise bargaining agreement, Mr Davis said: "It's up to the employees.''

"Our staff are incentivised and we have remuneration packages that reward the high efficiency levels we get from our business.''

Tiger is already advertising for Australian-based pilots, cabin crew and engineers on its web site.

Unlike failed previous airline's such as OzJet and Compass, Tiger Airways has the backing of Singapore Airlines. Tiger insists it runs independently from Singapore Air - its 49 per cent shareholder.

The move echoes Qantas's attempts to crack the South East Asian airline market by establishing a Jetstar Asia franchise in Singapore in late 2004.

The 44.5 per cent Qantas-owned airline has racked up an estimated $100 million in losses with its other Singapore subsidiary Valuair, and has never appeared to be a serious threat to Singapore Air or Tiger Airways.

Qantas chief financial officer and Jetstar Asia chairman Peter Gregg rejected suggestions Qantas was about it quit its Singapore investment yesterday.

Mr Gregg also hit out at a report in the Herald which mentioned the large number of flight cancellations on the airline, and its ongoing losses.

"It is ridiculous to equate a number of operational cancellations - which are in the process of being resolved - and a claim about pilot shortages, with concerns over the airline's future, as some media reports today have done,'' he said. He said Jetstar Asia made its first profit in December.

He said January however was a quiet month.

theage.com.au
http://www.tigerairways.com/oz/ozwelcome.php
 
RATINGS agency Standard & Poor's says the credit quality of Qantas is likely to be significantly weakened if an $11 billion takeover by a private equity consortium succeeds.

S&P today repeated that its BBB-plus longer and A-2 short term ratings on the airline remain on CreditWatch with negative implications.

The ratings on Qantas will remain on CreditWatch while the airline is subject to the leveraged buyout (LBO) from the Airline Partners Australia (APA) consortium.

"If APA is successful with its $11.1 billion cash bid for Qantas, the airline's credit quality will be weakened significantly because the transaction will be substantially financed by debt and lead to a marked increase in the airline's financial leverage," S&P analyst Jeanette Ward said.
 
QAN has dipped 25 cents (5%) in three days of trading, to be at the lowest sp in three months. Could this be a good short-term opportunity to go long QAN? At $5.07, it represents a 10% return, if the 15 cent special dividend is factored in.

Latest news on the takeover:

Qantas Bidder Says More Protection Unnecessary
CANBERRA (Dow Jones)--Airline Partners Australia, the private equity consortium mounting a A$11.11 billion (US$8.74 billion) takeover bid for Qantas Airways Ltd. (QAN.AU), Tuesday said no further legislation is needed to protect the national flag carrier's domestic routes and local jobs.
APA director David Coe told a Senate committee hearing the undertakings given to the Australian government last week and the provisions of the Qantas Sale Act and the Air Navigation Act are adequate protection.
The Senate economics committee is holding a half-day hearing into legislation to ensure Qantas subsidiary Jetstar remains an Australian-owned Australian-based operation.
The hearing is being held amid intense market speculation that the APA bid might be scuttled by activist fund managers who believe the A$5.45 a share offer is too low.
Qantas shares fell to A$5.04 Tuesday morning as investors awaited news about any plans by Qantas and APA to reach a deal with at least two fund managers who together hold more than 10% of the airline's issued capital and who could block the takeover.
APA has said it wants at least 90% acceptances, allowing it to compulsorily buy the remaining shares under local rules, and implement a A$10.65 billion debt funding package that hinges on winning outright control.
UBS Global Asset Management has about 7.1% of Qantas while Balanced Equity Management has about 4%. Qantas shares were 1.7% or nine cents lower at A$5.07 at midday.
A senior institutional trader, who asked not to be named, said Qantas needs to issue fiscal 2008 guidance before the two fund managers might be persuaded that this is as good as it gets for investors.
"In the absence of that (guidance for next year), the group seems to have dug themselves a hole that is pretty much irreversible," the trader said of the stance taken by the two fund managers.
Qantas, whose board and management support the APA bid, has upgraded its fiscal 2007 profit estimates to a gain of up to 40% but hasn't ventured any further out with its forecasts.
Unions and some government lawmakers fear Qantas jobs and services will be sent overseas if the APA takeover proceeds. The pilots union has also alleged the consortium could transfer Qantas businesses to subsidiaries to lower costs.
Qantas and APA have both said they have no such plans.
Coe, the chairman of consortium members Allco Equity Partners (AEP.AU) and Allco Finance Group (AFG.AU), gave evidence by telephone. He told the inquiry the bidding group's intention is to expand both Qantas and its Jetstar subsidiary, particularly its operations in Asia.
He dismissed concerns raised by Family First Senator Steve Fielding that Jetstar could be sold to a foreign concern.
"The question of whether Jetstar can or cannot become a foreign-controlled entity is governed by the Air Navigation Act," Coe said. Under that act, Jetstar would not be able to continue its international operations if it became majority foreign-owned, he said.
In submissions to the Senate hearing, APA and Qantas said the wording of the Qantas Sale (Keep Jetstar Australia) Amendment Bill 2007 could force Qantas Airways Ltd. (QAN.AU) to dispose of its stake in some offshore businesses, including its New Zealand subsidiary Jetconnect Ltd. and its minority holdings in Fiji's Air Pacific Ltd. and Singapore-based Orangestar, the holding company for Jetstar Asia and Valuair.
Coe suggested the wording of the legislation be changed so the relevant provision applied to Jetstar only, rather than to "associated entities".
The committee is to report its findings by March 20.
-By Barbara Adam, Dow Jones Newswires
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IMO, the takeover of Qantas will eventually be wrapped up, whether it be at the current offer of $5.60 (inc dividend) or a higher one (unlikely). That's why I think that once positivity about the progress of the takeover creeps back in, hedge funds will again drive the sp upwards. But still, anything could happen. Think Flight Centre...
 
scsl said:
QAN has dipped 25 cents (5%) in three days of trading, to be at the lowest sp in three months. Could this be a good short-term opportunity to go long QAN? At $5.07, it represents a 10% return, if the 15 cent special dividend is factored in.

Latest news on the takeover:


IMO, the takeover of Qantas will eventually be wrapped up, whether it be at the current offer of $5.60 (inc dividend) or a higher one (unlikely). That's why I think that once positivity about the progress of the takeover creeps back in, hedge funds will again drive the sp upwards. But still, anything could happen. Think Flight Centre...
Click to expand...


Well, there is an increasing sense that the takeover is not going well and that is shown in the latest Supplementary Bidder's Statement where they started offering fees to brokers to help with the sell. Interesting to see here that any broker that tries to sell you the idea of selling your QAN shares will be doing that more for the fee that for the real value.

WBII
 
Acceptances from QAN shareholders keep decreasing and this is showing the arrogance which the APA team has been showing for the last few weeks, claiming most of the time that if the offer is withdrawed the share price will drop.

So if the share price drops what is the problem?, are investors in QAN for the short run?. My opinion is that idea of the price dropping is just stupid and I am starting to believe that the price will actually go pass the $5.45 offer after a after-takeover price volatility.

I am also starting to believe and based on peers performance in this year that APA should pay much more for QAN.

WBII
 
Tommorrow's the last day for acceptances.

Even with the buyout offer the share price hasn't done much better than virgin blue this past year...
 

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niknah said:
Tommorrow's the last day for acceptances.

Even with the buyout offer the share price hasn't done much better than virgin blue this past year...
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Well, I do not think so. VBA hsa done much better because it doesn't have the takeover push that QAN has. So that graph is actually pretty good because it shows that what APA is paying is what QAN should be valued at and it does not include any premium.

WBII
 
Takeovers body blocks Qantas deal
May 06, 2007 03:14pm

http://www.news.com.au/business/story/0,23636,21680830-31037,00.html

THE Takeovers Panel has effectively blocked the private equity consortium Airline Partners Australia's takeover bid for Qantas, putting an end to the $11.1 billion deal.

The takeovers umpire has refused to look at the matter after the APA consortium asked it to allow a late acceptance for the offer, which would have let the bid proceed to the next stage.

APA has indicated that it intends to seek an urgent review of the decision, the panel said.

The fate of the takeover bid for Australia's largest airline has hung in the balance since Friday, when a large US hedge fund offered its shares to the group after an important deadline.

The bid effectively failed on Friday night when shareholder acceptances did not reach the 50 per cent acceptance level required to extend the offer by the 7pm AEST deadline.

APA applied to the Takeovers Panel to allow the belated acceptance from the US hedge fund, which the consortium believed gave it claim to 50.6 per cent of Qantas shares.

"The panel has decided not to commence proceedings in relation to APA's application," the panel said in a statement today.

The decision effectively scuttles APA's takeover offer for the airline.
 
Qantas takeover deal grounded
May 06, 2007 04:14pm

http://www.news.com.au/business/story/0,23636,21680832-462,00.html

  • Takeovers Panel won't allow deadline extension
  • Late-accepting fund 'should have known better'
  • Consortium asks for review to keep $11bn bid alive
THE Takeovers Panel has effectively blocked the private equity consortium Airline Partners Australia's takeover bid for Qantas, putting an end to the $11.1 billion deal.

The takeovers umpire has refused to look at the matter after the APA consortium asked it to allow a late acceptance for the offer, which would have let the bid proceed to the next stage.

Read the Takeovers Panel's decision in full.

APA has confirmed that it intends to seek an urgent review of the decision. A spokesman for Qantas has said the airline still plans to make a statement before the market opens tomorrow.

The fate of the takeover bid for Australia's largest airline has hung in the balance since Friday, when a large US hedge fund offered some of its shares to the group after an important deadline.

APA applied to the Takeovers Panel to allow the belated acceptance from the hedge fund, which the consortium believed gave it claim to 50.6 per cent of Qantas shares.

"The panel has decided not to commence proceedings in relation to APA's application," the panel said.

It said the late acceptance came from a single sophisticated shareholder "who should have been well aware of the closing time and the date of the offer and the implications of not meeting that deadline".

It is believed the decision effectively scuttles APA's takeover offer for the airline, pending APA's call for a review.

"APA notes that a majority of Qantas shareholders (around 60 per cent by number) representing more than 50 per cent of Qantas shares have indicated their support for the offer," APA has said.

"The APA proposal offers an attractive 60 per cent premium above the three year average price of Qantas shares prior to speculation about the offer."

The Takeovers Panel said it was currently appointing a sitting panel to consider the review application.

Analysts had said it would have been unprecedented for the panel to allow the late acceptance.

ACTU spokesman Richard Watts described the process of APA being allowed to ask for an extended deadline as a farce and akin to "allowing another player on the field after the game to kick an uncontested goal".

"The shareholders have made their choice and the bid has failed," Mr Watts said.

Federal Treasurer Peter Costello had said earlier that he hoped the Takeovers Panel would make its decision quickly.
 
OK guys - there could be a buying opportunity tomorrow. Could be some panic selling and an opportunity to bottom pick.

Who's up for chancing it ?:)
 
This is marvelous news. I might buy some more on tuesday just to hold more to prevent it falling into APAs hands if they intend to make another offer.
 
Yep the share price will go into a nose dive with this weekends antics; oxygen masks in the ready and make sure those tray tables are secured in the upright position:rolleyes:
 
I do not have experience like this circumstance.
Will APA increase its offer in the near future, or make the same offer again? How much bidding pricing APA have to or might increase in case like this?
 
The other share price to watch today today is AFG which was part of the Airline Partners Australia...
 
Good article on the Qantas Debacle

Giant bluff goes badly wrong

AMERICAN billionaire Samuel Heyman woke up early Friday morning in the US to several frantic and incredulous phone calls. The most furious were from two giant US hedge funds.

The funds were beside themselves that Heyman had managed to scupper the entire Qantas deal by reneging on a mutual understanding. This agreement had been supposed to deliver just enough stock to get the bid across the line by 5am, New York time.

Not delivering on the deal was not in the script.

Yet there it was. A complete world-class debacle. Forget Qantas retail shareholders or the Qantas board or the passengers or staff or even angry Canberra politicians. This was all about the giant game of bluff played by international hedge funds for hundreds of millions of dollars in hard cash.

The belated appearance of 4.9 per cent of Qantas shares from Heyman five hours after the Friday deadline was evidence of a desperate effort to fix up a massive bluff gone horribly wrong. It was all too late.

The problem was that Heyman tried to outfox even his peers in the hedge funds, only to end up ruining the whole big money game by accident.

Greed outwitted itself, wrecking reputations and Airline Partners Australia's $11 billion bid at the same time.

Qantas board in crisis
Now the Qantas board under Margaret Jackson is in crisis, the share market is in suspense and the bidding partners and funds are still desperately -- and unsuccessfully -- trying to salvage what they can.

“If this was an elaborate and cunning plan, it was straight out of Blackadder,'' says one insider.

Back in Sydney, the bidders at APA and the Qantas board were stunned by the failure to get to 50 per cent of acceptances by the 7pm Friday deadline.

Over the previous several hours, repeated calls from the team at Macquarie Bank, led by Tim Bishop, had given no indication Heyman would not accept the bid, merely that he would delay as long as possible. Meanwhile, the great man was sleeping.

But Heyman was soon to be almost as stunned and dismayed as many in Australia. He had privately believed the deal would get through without him, no matter what those sharp boys at Macquarie Bank had warned.
He had seen them in action before, and he was sure they had 5 per cent more acceptances they weren't telling him about.

Otherwise all the hedge funds, including Heyman's own, stood to lose hundreds of millions of dollars. And that was a result an aggressive operator like Samuel Heyman certainly didn't want.
His own hedge fund held 10 per cent of Qantas, and two other funds, Polygon Investment Partners and Highbridge Capital Management, had another 10 per cent combined.

The agreement had been that, between them, they would each deliver 45 per cent to 60 per cent of their holdings -- enough to just edge the deal over the 50 per cent minimum acceptance required by the deadline.

Greed plays hand
But Heyman didn't make all his money by playing fair over the past few decades. He had apparently been secretly determined to keep all of his Qantas holding.
This meant he would have even more stock to keep trading over the following two weeks, trying to earn yet more millions by gaming the difference between the $5.45 offer price and the lower price available on the market.

With enough shares, even a few cents difference can translate into big profits.

Now, as Heyman belatedly understood all too clearly and the other two hedge funds were angrily reminding him, he had lost his bet big time. And it would cost them all dearly.

Perhaps up to $1 billion, depending on what level the Qantas shares fall to.

“He was trying to be so tricky he caught himself coming back the other way,'' says a seasoned player.

APA in turmoil
Nor was it a simple matter to suddenly change the rules. APA, in shock and confusion, had put out a formal statement at 8.30pm Sydney time (6.30am New York) on Friday, saying the bid was dead.

At home in Melbourne, a bitterly disappointed Qantas chair Margaret Jackson knew she was facing a brutal onslaught of criticism even if she had nothing to do with the fiasco of the bid's failure.

Her attempt to put what had seemed a generous offer to shareholders last December had ended in an unprecedented disaster, leaving Qantas at the mercy of hedge funds which apparently couldn't even manage their own financial trickery.

APA was just as morose. It had put the 7pm Friday deadline on precisely to bring to an end the continual meddling in the offer by the hedge funds. Now it had all exploded in their faces.
No one could initially comprehend what Heyman's motive had been. They couldn't understand whether it was an accidental oversight, a deliberate strategy they didn't get -- or a massive miscalculation. It turned out to be the last. But it didn't matter. The hammer had gone down. It was all over.

Back in New York, however, Heyman was hurriedly trying to turn back the clock. He was spurred on by his incensed hedge fund colleagues at Polygon and Highbridge.

Hedge fund play
Most of the hedge funds had bought in at about $5.15 a share. If the Qantas share price falls back below $5, they will have lost hundreds of millions of dollars.

They were determined that shouldn't be allowed to happen.

Heyman held about $1 billion worth of Qantas shares, 4.9 per cent in direct shares and 5.1 per cent in complicated derivatives. He sent acceptances for his 4.9 per cent worth of shares just before midnight Sydney time, meaning the bid was now just over the minimum 50 per cent required.

The various players at APA suddenly had to regroup, hurriedly trying to breathe life back into the corpse. They put together a second statement that was sent out just after 4am on Saturday.

This declared that even though it “appeared'' the offer had failed to reach the 50 per cent level required on Friday evening, ``an acceptance from a large investor'' subsequently would take it over the threshold. The statement said the bidders would apply to the Takeovers Panel to allow the offer to continue.

But APA's initial statement declaring the offer would not proceed had publicised and politicised the whole mess.

A hearing of the Takeovers Panel consists of three members drawn from a range of 38 part-time business, legal and academic experts. They were clearly unimpressed by the last-minute attempts to get the APA offer back on track.

“The circumstances of which APA has complained are in relation to a single sophisticated shareholder with a significant interest in Qantas, who should have been well aware of the closing time and date for the offer and of the implications of not meeting that deadline,'' the panel decision noted firmly yesterday.

APA is now applying for a review of that decision by the Takeovers Panel and the Australian Securities and Investments Commission. Few in the market believed last night that this desperate grab for a foothold has any chance of success.

The Qantas board held a grim meeting last night, ahead of putting out a statement withdrawing its support for any efforts to keep the bid alive. It's already been an almost unbelievable nightmare for an airline that likes to congratulate itself on being well run. But the nightmare will continue when everyone comes to work this morning.

APA keeping quiet
APA is keeping quiet as it tries to unscramble the omelette.

The group is made up of Macquarie Bank, TPG, Allco Finance and Allco Equity Partners and Canada's Onex Partners. Smart, sophisticated players all. And now looking decidedly foolish. How could it all go so catastrophically wrong in this world of smart suits and high finance?

But it is Samuel Heyman and the other hedge fund managers who will be fighting most ferociously to regain any advantage they can out of their own disastrous mistakes.

Heyman is clearly going to be marked as the man responsible for the disaster, particularly by his “friends'' at Highbridge and Polygon. Presumably the paybacks will be vicious.

But right now they all have a vested interest in trying to help each other solve the problem as much as they can.

“Some of the biggest hedge funds in the world own nearly half this company and they are looking at huge losses,'' says one of those involved. “You wouldn't want to be standing between them and a pile of money.''

Unfortunately for Qantas, that is just where the airline is.
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http://www.news.com.au/business/story/0,23636,21684413-462,00.html
 
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