Redstone
22nd Feb 2007, 04:00
Texas Pacific Group
Australian Broadcasting Corporation Broadcast: 16/02/2007 Reporter: Helen Brown
The history of Texas Pacific Group, which is part of the consortium
making a bid for Qantas, has come under the microscope.
Transcript
VIRGINIA TRIOLI: Private equity groups are making their mark in Australia, including the
Texas Pacific group, which is part of the consortium making a bid for Qantas. Texas Pacific
has experience in the aviation industry. It spent years turning around the fortunes of
Continental Airlines in the United States but not all of the group's endeavours are quite so
successful. The Oregon Public Utility Commission in the US rejected TPGs bid to buy an
electricity company there, saying a large debt burden and short-term ownership were the
major sources of risk, and it was during the bidding process that other details about the Texas
Pacific plan emerged. Helen Brown reports.
HELEN BROWN: In November 2003, the American private equity group Texas Pacific made
a buyout bid for an electricity utility in the state of Oregon. Every one thought it was a done
deal, in fact a deal welcomed by many, but then and people started digging through the
application, and concerns began to emerge about the offer.
ANN FISHER, ATTORNEY: They said one thing and it was beautiful, and the research said
that their history with all corporations was something else altogether. That's what started us
looking.
HELEN BROWN: Lawyer Anne Fisher acted for the owners and managers of Portland's
largest buildings. Their association asked MS Fisher to look in to TPG's plans to buy out
Portland General Electric, because they were concerned, if the plan for the new owners went
wrong, the tenants might not be able to pay the rates, and building values could drop. The
lawyer’s first doubts came when she looked at past investments by Texas Pacific.
ANN FISHER: The only real concern was why was this group interested in Portland General?
Equity investors, particularly Texas Pacific Group, who was very, very capable, tend to make
profits in the 30 to 60 per cent range, and the utility commission limits the profits of the utility,
by regulation, to 10 per cent or thereabouts.
HELEN BROWN: The consortium bidding for Qantas is offering shareholders $5.60 a share,
which puts the value of the airline at $11 billion. Airline Partners Australia says Qantas is
worth the price. They've found an opportunity that's been overlooked by the rest of the
market. The consortium is stressing it's not interested in a quick deal, but will make a profit by
backing the expansion plans of current chief executive, Jeff Dixon, and APA says it has no
intention to break up Qantas or reduce regional services.
TPG has said it's more interested in growing the airline, rather than cutting costs and jobs. In
2003 the people of Oregon were told money would be invested, jobs not cut and the utility
would be locally controlled, but discovered among 80,000 documents was one drafted as part
of the TPG application that indicated how it might make a return on its investment. The
document had been protected from general public release, as it was claimed to be
commercially sensitive.
ANN FISHER: What we found in the internal documents that we pulled out during the course
of the litigation was that in fact their own due diligence documents said something quite to the
contrary. They said, first, that they were going to have a significant reduction in staff, maybe
30 per cent; that they intended to keep the utility for no more than five years.
HELEN BROWN: The consortium bidding for Qantas has structured its bid to meet Australian
laws on foreign ownership and control. TPG will have three representatives on the board that
would run the airline. A director and spokesman for the bidders is former Telstra chairman,
Bob Mansfield. There's speculation former Boeing Australia chairman Andrew Peacock will
also join the board as an independent director.
In Oregon, TPG appointed local notables that sit on the board that ran the utility but Ann
Fisher concluded the board members didn't have as much control as they thought.
ANN FISHER: Because of the way it was set up, they would vote essentially in a small
second-tier company that was wholly owned by a first-tier company, and the first-tier company
would have the ability to veto anything that the second-tier company board wanted to do.
HELEN BROWN: TPG is one of several potential investors in Qantas and the consortium's
intentions have been made public through a 90-page bidder's statement. Specific details
about the structures that will be set up by the investors to manage the ownership are not
known. The only people who might see such arrangements are at the foreign investment
review board which Airline Partners Australia has voluntarily submitted its bid to.
ANN FISHER: I don't want to say they're bad people. They're very good at what they do. It
just may not be what you want for Qantas.
HELEN BROWN: The foreign investment board is due to hand its recommendations on the
proposed takeover to the Treasurer next month.
VIRGINIA TRIOLI: And tonight a spokesman for Airline Partners Australia said it had no
comment to make on the story at this stage.
It remains to be seen, but I for one think this will be the more likely outcome for a large number of Qantas employees should the sale get the green light.
Australian Broadcasting Corporation Broadcast: 16/02/2007 Reporter: Helen Brown
The history of Texas Pacific Group, which is part of the consortium
making a bid for Qantas, has come under the microscope.
Transcript
VIRGINIA TRIOLI: Private equity groups are making their mark in Australia, including the
Texas Pacific group, which is part of the consortium making a bid for Qantas. Texas Pacific
has experience in the aviation industry. It spent years turning around the fortunes of
Continental Airlines in the United States but not all of the group's endeavours are quite so
successful. The Oregon Public Utility Commission in the US rejected TPGs bid to buy an
electricity company there, saying a large debt burden and short-term ownership were the
major sources of risk, and it was during the bidding process that other details about the Texas
Pacific plan emerged. Helen Brown reports.
HELEN BROWN: In November 2003, the American private equity group Texas Pacific made
a buyout bid for an electricity utility in the state of Oregon. Every one thought it was a done
deal, in fact a deal welcomed by many, but then and people started digging through the
application, and concerns began to emerge about the offer.
ANN FISHER, ATTORNEY: They said one thing and it was beautiful, and the research said
that their history with all corporations was something else altogether. That's what started us
looking.
HELEN BROWN: Lawyer Anne Fisher acted for the owners and managers of Portland's
largest buildings. Their association asked MS Fisher to look in to TPG's plans to buy out
Portland General Electric, because they were concerned, if the plan for the new owners went
wrong, the tenants might not be able to pay the rates, and building values could drop. The
lawyer’s first doubts came when she looked at past investments by Texas Pacific.
ANN FISHER: The only real concern was why was this group interested in Portland General?
Equity investors, particularly Texas Pacific Group, who was very, very capable, tend to make
profits in the 30 to 60 per cent range, and the utility commission limits the profits of the utility,
by regulation, to 10 per cent or thereabouts.
HELEN BROWN: The consortium bidding for Qantas is offering shareholders $5.60 a share,
which puts the value of the airline at $11 billion. Airline Partners Australia says Qantas is
worth the price. They've found an opportunity that's been overlooked by the rest of the
market. The consortium is stressing it's not interested in a quick deal, but will make a profit by
backing the expansion plans of current chief executive, Jeff Dixon, and APA says it has no
intention to break up Qantas or reduce regional services.
TPG has said it's more interested in growing the airline, rather than cutting costs and jobs. In
2003 the people of Oregon were told money would be invested, jobs not cut and the utility
would be locally controlled, but discovered among 80,000 documents was one drafted as part
of the TPG application that indicated how it might make a return on its investment. The
document had been protected from general public release, as it was claimed to be
commercially sensitive.
ANN FISHER: What we found in the internal documents that we pulled out during the course
of the litigation was that in fact their own due diligence documents said something quite to the
contrary. They said, first, that they were going to have a significant reduction in staff, maybe
30 per cent; that they intended to keep the utility for no more than five years.
HELEN BROWN: The consortium bidding for Qantas has structured its bid to meet Australian
laws on foreign ownership and control. TPG will have three representatives on the board that
would run the airline. A director and spokesman for the bidders is former Telstra chairman,
Bob Mansfield. There's speculation former Boeing Australia chairman Andrew Peacock will
also join the board as an independent director.
In Oregon, TPG appointed local notables that sit on the board that ran the utility but Ann
Fisher concluded the board members didn't have as much control as they thought.
ANN FISHER: Because of the way it was set up, they would vote essentially in a small
second-tier company that was wholly owned by a first-tier company, and the first-tier company
would have the ability to veto anything that the second-tier company board wanted to do.
HELEN BROWN: TPG is one of several potential investors in Qantas and the consortium's
intentions have been made public through a 90-page bidder's statement. Specific details
about the structures that will be set up by the investors to manage the ownership are not
known. The only people who might see such arrangements are at the foreign investment
review board which Airline Partners Australia has voluntarily submitted its bid to.
ANN FISHER: I don't want to say they're bad people. They're very good at what they do. It
just may not be what you want for Qantas.
HELEN BROWN: The foreign investment board is due to hand its recommendations on the
proposed takeover to the Treasurer next month.
VIRGINIA TRIOLI: And tonight a spokesman for Airline Partners Australia said it had no
comment to make on the story at this stage.
It remains to be seen, but I for one think this will be the more likely outcome for a large number of Qantas employees should the sale get the green light.