Wisdom of rejected deal cold comfort to former Qantas board members
BY: GLENDA KORPORAAL From: The Australian June 07, 2012 12:00AM
FORMER Qantas chairman Margaret Jackson was in hospital in Melbourne five years ago, awaiting an operation on her arm, when she made one last attempt to explain that Qantas shareholders had been offered an almost once-in-a-lifetime price for their airline at $5.60 a share.
With Qantas shares plunging to $1.12 yesterday, the Qantas board's move to recommend the $11 billion bid by Airline Partners Australia in December 2006 looks more sensible by the day, at least from a shareholder point of view.
But it is cold comfort today to those Qantas board members who tried to tell their shareholders at the time that it was a good deal at a price that might never come along again. The bid was a controversial one, with some investors arguing that there was even more upside to come for Qantas shares, while the general public was emotional about the idea of the national airline falling into the hands of private equity investors.
A few months after the initial offer, Ms Jackson and the other members of the Qantas board believed they should try one last time to get the message across to their shareholders that aviation was a risky business that, at the time, was going through a rare purple patch.
"This is an outstanding opportunity for shareholders," Ms Jackson told this reporter in March 2007.
"Our share price has constantly traded between $3 and $4. This is the highest price we have ever been able to put to shareholders."
She also pointed out that many of Qantas's major shareholders at the time had already sold into the market, then trading slightly below the offer price, because they knew it was a "very, very, very good deal".
Ms Jackson also warned shareholders that if the bid did not go ahead Qantas shares might fall, as the hedge funds that had bought into the airline would dump their stock if it didn't go ahead.
In the end the bid failed at the last minute as one of the US-based hedge funds did not accept the offer, but for Qantas shareholders Ms Jackson's comments have proved painfully correct.
Five years later Ms Jackson, criticised at the time for chairing a board that recommended shareholders accept the bid (a board that included then chief executive Geoff Dixon and James Packer), keeps a low profile and does not want to discuss those times in any detail. She chooses her words carefully and resists any temptation to hit out at her then critics.
"The board decided to put the offer to the shareholders at the time because it was deemed to be a good offer," she said yesterday.
"The aviation industry at the time was going through an unusually favourable environment.
"At the time we received the bid, we evaluated it in that environment and we put it to the shareholders.
"They had the opportunity to accept or reject the offer and they chose to reject it."
Asked about the criticism the board faced then for recommending the offer, which was well above the airline's share price at the time, she said: "You have to deal with the issues you are confronted with at the time with the best information you can obtain, the best advice you can obtain.
"You have to act on that with wisdom and judgment, taking all those things into account."
Qantas's finance director at the time, Peter Gregg, who is now finance director at Leighton Holdings, is more outspoken.
"It was a missed opportunity," he told The Australian yesterday.
"It was a great offer for the shareholders and the comments at the time that they would not get a better one have proven to be correct," Mr Gregg said.
He pointed out yesterday that Qantas shares had traded between $2 and $4 a share since its listing and the bid price of $5.60 a share also included a premium for control of the company.
"It was a tremendous offer," Mr Gregg said.
"It was significantly higher than the highest traded price and if we hadn't put it to shareholders we would have been in a fair bit of trouble."
Mr Gregg said he was sure some people might be "running their eyes" over Qantas at the moment, given that its present sharemarket capitalisation of about $2.6 billion was below the $3bn in cash in its coffers.
But he said he had personally "moved on" and was not buying any shares despite the present low price for the airline.
Mr Gregg confirmed that Qantas directors had received legal advice at the time that if they had not allowed shareholders to vote on the offer they could be sued if the share price fell afterwards. That advice has also proven correct.
The Airline Partners bid for Qantas was a top-of-the-market offer launched when finance was easy in the particularly heady days before the global financial crisis. Business was booming, fuel was relatively cheap, Qantas was doing well and some argued that for the airline the sky was the limit.
But anyone with any experience of the airline industry knew that it was a rare period of calm in an industry known for its turbulence.
If the Qantas board had not recommended the offer, it is not hard to believe shareholders would have mounted a class action by now as their share prices have plunged.
Mr Gregg rejects the idea that the APA offer would have been a bad one for Qantas itself.
Conventional wisdom has it that if the bid had gone ahead it would have saddled Qantas with so much debt that it would have collapsed and had to be rescued by the government.
It is hard not to believe that the debt levels involved in the private equity bid would not have weighed on Qantas as it faced more turbulent times.
Mr Gregg pointed out yesterday that the private equity bidders had negotiated a particularly good financing deal at the time.
There were also plans for the airline to sell off assets including Qantas Frequent Flyers to reduce its debts.
"There was an opportunity for a decent return for shareholders and for the company to restructure to help it survive the rigours of the industry," he said.
"There were plans to pay down the debt and leave the company with a good operating position.
"What would have happened if the bid had been successful
is hard to speculate on, as it
didn't happen.
"But clearly management at the time believed it was a good thing for the company."
In the end, the debate about what would have happened to a privatised Qantas is a moot point.
The airline's price today makes its shares a much better deal than it ever was for investors five years ago.
But as Mr Gregg pointed out yesterday, the current price reflects investors' views of the future.
These days the easy financing available at the height of the boom is no longer available for private equity bidders, which are traditionally highly leveraged.
Qantas could well have struggled under the debt load of the private equity bid and many Australians were relieved the takeover bid did not go ahead.
But the airline's board members of the day should at least get some credit for their argument at the time that the offer of $5.60 a share was one that Qantas shareholders wouldn't see again any time soon.
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So, let me get this straight. the APA deal would have destroyed Qantas with massive amounts of debt yet what Margaret Jackson and Peter Gregg are saying is the company is f@#ked now anyway and as shareholders we should of bailed out when we could have with the better price per share when it was offered?
If there was any doubt about the lack of interest in saving this once great company by the past and present execs, there you have it in black and white from the former chairman. Qantas is considered by the execs as nothing more than a traded commodity that has had its day and us as shareholders (and employees) are considered losers that missed the peak opportunity to get out.
Good work Jackson, Gregg, Dixon, Clifford and not to forget Joyce. Your names will be firmly sketched into the Qantas headstone.
While we all join the unemployment queue.
