Alexa

Qantas takeover deadline looms, with deal hanging in the balance

Qantas takeover deadline looms, with deal hanging in the balance

The group bidding 10.8 billion Australian dollars (US$8.9 billion; euro6.55 billion) to buy Qantas Airways will likely get enough acceptances before a Friday deadline to extend its offer, analysts said. But investors opting to remain as minority shareholders could still scuttle the deal.
The A$5.45-per-share bid by Airline Partners Australia, led by Macquarie Bank and U.S. buyout specialist Texas Pacific Group, is due to expire Friday at 7 p.m. (0900 GMT).
The bid has been declared final, cannot be extended or increased by the consortium, and is conditional on acceptance by 70 percent of shareholders.
The offer for Qantas, a former state-owned national carrier marketed as the Flying Kangaroo, is one of the largest takeover bids in Australia's corporate history and comes amid a flood of local mergers and acquisitions led by private equity groups.
Airline Partners said in a statement Thursday the level of acceptances for its offer launched Dec. 14 had risen to 32.96 percent from the 25.94 percent announced on April 26 _ well short of the 70 percent required for success, and shy of the 50 percent threshold required for the deal to be automatically extended a further two weeks under Australian takeover laws.
If the group fails to get 50 percent by the Friday deadline, the deal will likely fall through.
JP Morgan analyst Matt Crowe said it was unlikely the threshold would not be reached.
Qantas shares have remained at a discount to the bid since it was launched, closing 4 cents firmer at A$5.34 on Wednesday.
Shareholder resistance forced Airline Partners to last month modify its original deal requiring 90 percent acceptances, a move that Crowe told clients had "fundamentally altered" the appeal of the bid.
"It is now possible for investors to participate in a private equity deal by simply not accepting APA's offer," Crowe said.
The group plans to raise up to A$7.5 billion (US$6.2 billion; euro4.56 billion) in debt and A$3.5 billion (US$2.9 billion; euro2.13 billion) in equity to fund the acquisition, then use its controlling stake to return about A$4 billion (US$3.3 billion; euro2.43 billion) in capital to shareholders within 12 months and burden Qantas with more debt.
That prospect has led ratings agency Moody's Investor Services to warn that Qantas' Baa1 credit rating could be downgraded several notches to Ba3 if the takeover proceeds.
With two earnings upgrades since the bid was launched, continued strong passenger growth, and a robust equity market, several analysts believe the outlook for Qantas is rosy in the absence of a takeover.
Heavy trading since rumors of a bid first emerged in early November has led to a change in hands of about 1.6 times Qantas' share registry, with hedge funds estimated to be holding an estimated 40 percent.
Analysts expect a last-minute rush of acceptances from these hedge funds to allow the deal to be extended by two weeks.
"Shareholders delay accepting a public takeover offer until the day they assess the bid will become unconditional _ until the last minute," Fabian Babich of Sydney broker BBY said, adding that he expects a "torrent of acceptances" on Friday.
The original 90 percent target would have allowed the bidders to delist the airline and use its cash flow to set up a A$10.65 billion (US$8.78 billion; euro6.46 billion) finance package.
While that option remains open, major shareholders Balanced Equity Management and UBS Global Asset Management, who between them control more than 10 percent of Qantas stock, have indicated they believe the bid is underpriced.
"Qantas represents one of the better-value stocks in the market at the moment, so we would be a buyer rather than a seller," Balanced Equity founder Andrew Sisson told Australian Broadcasting Corp. television Sunday.
Sisson also suggested Airline Partners could come back with a higher offer around A$6.45 or more.
__
Bill Lindsay is a correspondent for Dow Jones Newswires.