APA fails at QF takeover bid

Very surprising!

What are the hedge funds doing??? I think thats the more important question! In the past few weeks they have "APPARENTLY" accumulated 30-50% of the company and everyone was expecting them to ultimately accept the deal and in the mean time engage in some good old fashion arbitrage trading (buying the stock cheaply because the market thought the deal would fail - and then ultimately sell to everyones "surprise")

If this deal is really dead then the hedge funds will be forced to sell the company (foreign limit of 50% limit) - share price is going to tank if the Treasurer forces the hedge funds to sell.

I have a feeling that the hedge funds didn't expect this - hedge funds make profits with low risk - and this outcome would be unacceptable in their view. They were never going to accept all of their 'shares' - probably just enough to get over the 50% line - so that they could buy more shares next week and ultimately accept the bid.

The company needs to raise $13 billion dollars to fund aircraft upgrades?
Thats more than the entire market cap!
This deal would have given them the abillity to do that without ultimately having to deal with shareholders who would be very uncomfortable with the debt loads.

The only option now is that Qantas raises the debt itself while still having the equity component making up the business - IMAGINE HOLDING QANTAS SHARES NOW - SHARE PRICE WILL TANK

Then again I think the hedge funds are up to something.

tayser said:

QAN closed at $5.380 today - where to Monday I wonder...

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Virgin Blue and Air NZ have risen by similar amounts since the Qantas deal was first announced and now - so theoretically Qantas should not fall.

BUT if foreign hedge funds have really accumulated up to 50% of the company then they will be forced to sell - share price could tank from that hang over.

The stock price of Allco Finance Group (AFG) - the lead consortium member - is something to watch on Monday!

I'm interested to know just what percentage of the hedge funds are actually foreign. A couple of weeks ago much of the decline in institutional acceptances was put down to the international hedge funds cashing out their postitions on the back of the strong aussie dollar.

This will surely trigger a change in the ranks of senior management.

zach24 said:

The company needs to raise $13 billion dollars to fund aircraft upgrades?

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eh? their enormous boeing order was pre-APA (and not all are destined for mainline)...

They're bound to make some cash by flogging off the 20 or so 767-300ERs they own (29 all up, some are leased from BA) & they're probably bound to sell of some A330s (or lease them to other carriers).

Brand new prices: http://www.boeing.com/commercial/prices/ * note: to be conservative, half those prices for used aircraft

There's a one or two billion right there.

zach24 said:

^ Pre-ordered but not paid for right?
company is going to be debt-laden regardless of this deal going through
anyone who thinks it would be fun to hold a stock which is extremely volatile and dependent on the oil price is going to be in for a rough ride.

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no immediate reaction to the (massive) order back in Nov 05, read articles about financing.

Capital formation tends to be included in the operating costs for airlines so dont look at the profits and assume that these are needed to fund new purchases, Qantas will not be changing their gearing ratio much by buying these new aircraft. The smartest decision that the board ever made was to get in early and get a good deal on the 787. Qantas has secured a massive order of this aircraft and given their launch customer status they would have got them at a considerable discount. They also negotiated a good discount on the A380 after the delivery delay. Basically this means that Qantas (along with Emirates) is going to have the most modern fleet in the world and at a considerable discount to list price. This will mean a massive competitive advantage.

When it comes to the crunch share price is meaningless. If the price of Qantas does collapse in the fallout from this deal trust me I will be the first in line to buy shares.

^ they will

But Margret and Geoff are the biggest assets that company has ever had.
Their leadership and political influence has provided Qantas with a massive boost.

Nevertheless, I'll put in a low ball offer for some shares on Monday - $3.90-$4.10 (don't really want it but would like to make some of the obvious loss I will make on AFG on Monday). Hopefully there are some stupid sellers who push it down 20-35% in early trading.

Zee plot thickens.

http://www.theage.com.au/news/business/qantas-bid-hangs-in-balance/2007/05/05/1177788441364.html

Qantas bid hangs in balance

May 5, 2007 - 8:36AM

The $11.1 billion takeover bid for Australian carrier Qantas hung in the balance today, and may still continue after all.

The Airline Partners Australia (APA) consortium last night all but conceded defeat in the bid, announcing it appeared to have failed to reach the 50 per cent level required to extend the offer.

But APA said early today that a late acceptance from a large investor meant it intended to press ahead with the bid.

"On Friday evening, APA announced that, subject to confirmation, it appeared that the offer had failed to reach the 50 per cent level required for the offer to proceed," it said in a statement.

"However, subsequently on Friday, APA received an acceptance from a large investor, which would be sufficient to take acceptances for Qantas shares to more than 50 per cent.

"APA intends to make submissions to the Takeovers Panel to allow the offer to continue."

APA said the late support took acceptances to a majority of 50.6 per cent of Qantas shares, accepted on behalf of 58 per cent of all Qantas shareholders.

APA had been hoping to gather more acceptances to reach 50 per cent so that the $5.45 per share offer would be automatically extended by two weeks.

That would have given it breathing space to secure the 70 per cent it needed for the offer to fully succeed.

The group, led by Australia's largest investment bank Macquarie Bank, said last night its plans for Qantas would have significantly enhanced the airline, guaranteed strong growth and been beneficial for employees and customers.

As well as Macquarie Bank, the APA consortium included US private equity firm Texas Pacific Group, Canadian private equity firm Onex Corp and Australian investment groups Allco Equity Partners and Allco Finance Group.

Qantas shares closed last night up one cent at $5.38.

The board of Australia's largest airline rejected an initial takeover offer from APA in mid-December before accepting a sweetened bid shortly afterwards.

The consortium restructured its offer last month in a bid to boost its chance of success, lowering the minimum shareholder acceptance condition to 70 per cent, from 90 per cent.

AAP

Don't get too cocky because it's still happening. They found another big seller. Read this from The Age (one hour ago).

Qantas bid alive after late support

The $11.1 billion takeover offer for iconic Australian airline Qantas remained alive on Saturday after bidders received last-minute support from a large investor.

The Airline Partners Australia (APA) consortium on Friday night all but conceded defeat in the bid, announcing it appeared to have failed to reach the 50 per cent level required to extend the offer.

But in a dramatic turnaround, APA said early on Saturday a late acceptance from a large US investor after Friday night's 7pm (AEST) deadline had passed meant it intended to press ahead with the bid.

It said it would approach regulators to allow the offer to continue.

"On Friday evening, APA announced that, subject to confirmation, it appeared that the offer had failed to reach the 50 per cent level required for the offer to proceed," it said in a statement.

"However, subsequently on Friday, APA received an acceptance from a large investor, which would be sufficient to take acceptances for Qantas shares to more than 50 per cent.

"APA intends to make submissions to the Takeovers Panel to allow the offer to continue."

APA said the late support took acceptances to a majority of 50.6 per cent of Qantas shares, accepted on behalf of 58 per cent of all Qantas shareholders.

The Qantas board was meeting in Sydney on Saturday to discuss the latest developments, a spokesman said.

APA had been hoping by Friday night's deadline to take acceptances to 50 per cent or over, so that the $5.45 per share offer would be automatically extended by two weeks.

Under takeovers law, passing the 50 per cent threshhold would give the bidders breathing space to secure the 70 per cent it needs for the offer to fully succeed.

Led by Australia's largest investment bank Macquarie Bank, the APA consortium includes US private equity firm Texas Pacific Group, Canadian private equity firm Onex Corp and Australian investment groups Allco Equity Partners and Allco Finance Group.

Qantas shares closed on Friday night up one cent at $5.38.

The overnight development is just the latest twist in the controversial bid, which is opposed by unions who fear the airline could be broken up or shift overseas.

The Qantas board rejected an initial takeover offer from APA in mid-December before accepting a sweetened bid shortly afterwards.

The consortium restructured its offer last month in a bid to boost its chance of success, lowering the minimum shareholder acceptance condition to 70 per cent, from 90 per cent.

APA says its plans for Qantas will significantly enhance the airline, guarantee strong growth and be beneficial for employees and customers.

Grant Mitchell of Shaw Stockbroking said he always expected the bid to be close.

"Certainly a lot of people thought the bid wouldn't succeed, so they have been reluctant to accept," Mr Mitchell told ABC radio.

Despite Saturday morning's development APA is still a long way from a successful takeover, he said.

"It does make it very difficult to achieve the 70 per cent that they hoped to for the bid to succeed and it is now running up against some of the hardcore shareholders that have indicated that they wouldn't accept this bid at this current price," Mr Mitchell said.

"Obviously they (APA) have indicated to that investor that the share price will fall significantly if the bid was finished at this time and it was in the best interest of that shareholder to accept the bid, either for part or all of their holdings."

Market analyst Professor Justin O'Brian from the Centre for Applied Philosophy and Public Ethics also told the ABC the board of Qantas had some serious questions to answer about its advice to shareholders.

"I think the market will look very, very closely at whether or not the board of Qantas, in actual fact, read the market effectively, read where private equity was happening on a global basis and whether or not what they were putting forward to the shareholders of Qantas was actually in the best interest of the corporation," he said.

"It does seem that the market has said quite emphatically that the board of Qantas has got it wrong."

The Qantas board of directors will meet on Saturday to discuss the revived 11th hour takeover bid.

Qantas spokesman Simon Rushton said the board would meet in Sydney on Saturday morning but an outcome from the meeting was not expected before midday.

"There will be a board meeting today, that's all I can confirm at this stage," Mr Rushton told AAP.

He would not divulge details of the meeting.

It all seemed a bit strange considering the Hedge Funds owned more than 50% - and hedge funds are not there to block the bid.

This is probably what they wanted to happened.
Now everyone will expect that the bid is unlikely to reach 70% and there may still be some selling pressure of QAN on Monday.
But the hedge funds will be again be massive buyers next week.

Takeover Panel has refused APA's application to accept the late share sale from the US hedge fund and to extend the bid. As they rightly should! The Takeovers Panel have done the sensible thing.

There is absolutely zero positive outcomes that could come from allowing the late sale to go through. They missed the 7pm and that is that. If they were grant this concession to APA it would set a precedent that would undermine all future takeovers in this country.

If APA are prepared to go these sorts of lengths to secure Qantas ownership then I really feel sorry for the Qantas staff who would have to work under these owners. Do APA believe they are immune from the practice of good corporate governance?