APA Qantas Bid Strategy

[YesTAM]

Moderators can roll this into the other thread if they like.

I've been trying to understand the strategy behind the Qantas privatisation via the APA bid because initially it didn't seem to make sense, but now I think it does, and I thought I might try and explain what I think it is and why its very cunning and probably going to result in the players laughing all the way to the bank, and its all perfectly legal of course.

What we know, without too much research, is that APA is going to pay about 9 - 11 billion odd for Qantas, about 3.5 billion is equity, the rest borrowed. The actual figure depends on acceptances.

Once acquired, Qantas is going to be "recapitalised", that means it is going to sell every asset it can and take on as much debt as it is able. The cash freed up will then repay APA. The figure suggested in the Australian this morning was $4.5 billion.

Now if APA can get this far, and depending on the relationship between debt holders and the APA people, much of the 3.5 billion in equity APA put in will be repayed, in fact if all of the money went to the APA equity holders, then they would be one billion dollars in front.

I'll leave out the question of exactly how much APA can pay itself by "recapitalising" Qantas. That depends in part on how good the share markets valuation of what Qantas is worth is. If there is a 'surprise surprise" moment and the value of the Qantas assets sold is much higher than the market expected, then the APA bidders are home free. Conversly if the value is less than what APA calculated when bidding then the existing Qantas shareholders are laughing.

It's a bit like selling an old car covered with mud and rubbish, you think you are selling an old Holden, but when the new owner polishes it up...well surprise! Its actually a very rare and expensive Monaro!. My guess, and it is only a guess, is that the stockmarket undervalues Qantas because of the prudential requirements of the Stock Exchange and the ACCC - they require the company to report conservatively.

I guess that begs the question of why the present Board couldn't change that perception, but then again, in the face of an offer like this, why would they try? In addition, we have had years of the Board and management telling us that Qantas is "under threat". Given that they have been making billion dollar profits year after year, I keep wondering how much money is squirrelled away in the old accounting "hollow logs" (like depreciation charges) that many companies use to keep their profits adequate, but not spectatcular, while keeping a little left over for a rainy day. This is speculation of course. I am not for one minute suggesting anyone would do anything either illegal or unethical.

I guess the "under threat" mantra was a good tactic to keep pressure on costs while at the same time threatening the Government about what might happen if they allowed more competition.

OK, so assume the takeover is successful. APA has successfully recapitalised the company taking out at least 4.5 billion to repay itself the 11 billion it has borrowed - they've got about one third of their money back in cash.

Qantas now has a huge interest bill and massive borrowings. the downside of this is that if you don't make enough to cover your annual interest bill and capital repayments you are in very deep s*^t. The upside is that anything left over after costs and interest payments is profit, moolah, call it what you will, and it can be substantial.

So in effect, what APA is doing is converting a cash rich, conservative organisation that likes to own its assets, into a radical, cash lean operation that owns as little as possible, and even then has borrowed the money to buy what it has to. You know the drill - lease everything - only ferchrissake make the lease payments!

Now we know this is a risky strategy, but here is the twist, it's not a risky strategy at all!!! Why? Because no Commonwealth Government, Labor or Liberal, can afford the political fallout of seeing Qantas fail.

A curious twist happens when Governments make deals with businesses, about nine months after the deal is done and anything goes wrong, its always the Governments fault. Take the Lane Cove Tunnel or Citylink in Melbourne, is anyone blaming the businesses for being lying rotten greedy weasels???? Of course not!!!! The are blaming the Government for having signed a contract with a bunch of lying rotten weasels. The weasels can just keep making money while the Government cops the blame!

So can anyone guess who gets the blame if Qantas gets into trouble? Thats right - not APA - the Government for letting it proceed! Can you imagine the public outcry if Qantas announces its in financial trouble? How big do you think the demonstrations would be if Qantas announces that it is considering a takeover bid by Koreans or Chinese companies? "we tried our hardest" APA said "We thought we could succeed, and so did the Government" says APA. But guess who wears the stink? Thats right! The Government!


This is where the "legally enforceable undertaking" given by Qantas to the Government is actually in the company's favor NOT the Australian publics favor, let alone the Qantas workers. All the company has to say is "we complied with our undertakings balh blah, but the government is destroying our business by allowing Singapore airlines blah blah.." Thats how it will spin.

As a result, Qantas is going to be safe from increased competition for as long as APA owns it. You can also expect that the Government will stand 100% behind Qantas (Labor or Liberal) in any face off with its staff. If Qantas does get into trouble, the Government will have no choice but to modify the conditions of their legal agreement and perhaps make other conditions (like the 51% rule) or face Qantas going down the tubes and being sold to the highest bidder.

So there is really a lot of blue sky for APA, much more than the public or the market realises, because the share market has not factored in Qantas's close links with both political parties, its superb spin machine and its value as an iconinc Australian institution that must not be allowed to fail. Thats worth plenty more than the sharemarket thinks it's worth, but it appears that only APA can unlock this value, or the present Board is incapable doing the same thing, assuming the shareholders would want to.

[J430]

So in effect, what APA is doing is converting a cash rich, conservative organisation that likes to own its assets, into a radical, cash lean operation that owns as little as possible, and even then has borrowed the money to buy what it has to. You know the drill - lease everything - only ferchrissake make the lease payments!

And with an industry so easily affected by say a SARS or terror event would you like to be in this position or the conservative cashed up position.:ugh: :ugh: :ugh:

One hiccup = a Cluster F^&* of a magnitude that makes Ansett look like losing your wallet at the end of a big night out:eek:

Is Qantas an airline that employs accountants or a an accounting/banking firm with some stupid expensive aeronautical things getting in the way of doing business:=

J:* Not happy Australian

[neville_nobody]

The trend in the past 20 years by airline executives especially the LCC breed, has been to rubbish the way airlines traditionally did business. They come in spruking new lean and mean everything, telling everyone how they can reinvent the wheel blah blah, whilst in the same breath rubbishing legacy airlines. However these guys along with APA are forgetting that the airline business is a one of a kind industry. You go ultra lean and mean at your own peril. Airlines need to make hay while the sun shines and have something in reserve when times are tough. One more SARs, 9/11, Asian economic meltdown, WWIII and QF will be another Pan Am. Now given the position that they are in it at the moment it would be one of the greatest corporate stuff ups of all time!

As said above I cannot see how having an airline, which is effectively part of the national transport infrastructure (like it or not), going from being in a very financially strong position to being in debt to its eyeballs as being in Australia's national interest. Has the government considered the 70% scenario before it approved the the takeover?

[bentleg]

I agree its not a good thing for Qantas and Australia.

If you dont like it don't sell your shares. If you have signed them over you can withdraw that commitment.

[Wingspar]

Someone once commented;

“If a capitalist had been present at Kittyhawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money. But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in.

You've got huge fixed costs, you've got strong labor unions and you've got commodity pricing. That is not a great recipe for success. I have an 800 (free call) number now that I call if I get the urge to buy an airline stock. I call at two in the morning and I say: “My name is Warren and I'm an aeroholic.” And then they talk me down.”

[gaunty]

I hang my head in shame.:{

That we are powerless to stop this full on vanilla robbery in plain sight, it's not even tricked up, of the assets and goodwill of an airline that we paid for out of our taxes, and having watched the same stunts in the eighties called something different is just beyond me and an indictment of the dumbing down of the Australian electorate.

You can call it anything you like, but I call putting 5 odd billion down to buy something and taking circa 5 billion in cash back out and replacing everything else with debt and calling it financially more efficient to sell back top thje shareholders at some later point in time is an insult to our common sense. And that is not counting the gazillion dollars in fees that Macbank et al cop in fees. And somehow we are suipposed to be grateful.

Guess who is paying, and it is not them.

We have it seems learnt nothing.:{

[Jet_A_Knight]

However these guys along with APA are forgetting that the airline business is a one of a kind industry.

These guys are not in the 'airline business'.

They are in the 'making money business'.

Let's get that straight.

Ah the joys of the 'free market economy' and a 'business friendly government'.:{

[radiation junkie]

GD's favourite line to Pilots, Cabin Crew, Engineers, etc etc etc...

Quote:
However these guys along with APA are forgetting that the airline business is a one of a kind industry.

Yes and we will never meet Cost of Capital. GD has destroyed the loyal employee base Qantas had and decimated the future of aviation career paths for Australians. How will APA struggle with this concept ? The next few months will be very interesting.

[Taildragger67]

IMHO...

Blame Little JH and his user-pays, neo-conservative mates and the financiers who now sit in the building which arose behind the old GPO facade.

Yes, companies exist to make money for their shareholders - so management has a duty to always be thinking about how they can control costs and maximise revenue - but that can be done on a short- or long-term horizon.
The former simply looks at what can we sell/cut and what can we charge; the latter looks at the bigger picture, ok we pay our people a bit more but they give such good service that we've got a loyal client-base which will stick by us in the lean times.

But will LJH get voted out? Not whilst Mr Reasonably-Well-Off from Castle Hill's wallet continues to fatten. And that is all that matters...

I guess one can't blame the bankers, they're in business to make money from assets and here they've spotted an asset from which they believe they can make money. The blame possibly lies with those who allowed the situation to develop, both politically and within the enterprise. Clearly, APA think they will be able to get above-average returns out of the business, over the medium- to long-term. One could be for asking why no-one (eg. regulators) has asked why incumbent management has not been able to extract the same value and, as a result, to what extent their duty to shareholders has possibly not been fulfilled. :hmm:

[lowerlobe]

It seems to me that this whole affair might bear an eerie resemblance to the Merchant of Venice.

Who plays the role of Shylock?

Is it APA or Darth or maybe the banks underwriting the takeover bid?

I'm leaning towards Darth and APA is Bassanio who wants to borrow on QF's credit.

Is Antonio represented by the QF employees?

Who plays Portia and rescues Antonio?

Perhaps some future Federal Government that has to pick up the pieces that Johnny Howard is allowing to happen.When you think about the defence implications alone QF cannot be allowed to go the way that Ansett did.

Remember though 2 of the best quotes from the play and I find them uncannily relevant...

"The devil can cite Scripture for his purpose."

"All that glitters is not gold."

[stubby jumbo]

The stench from this whole sorry saga becomes more putrid day by day.

Now we hear that the APA "chain saw gang" are going to rip out $4billion in costs in the FIRST YEAR !!!

This is after a yearly assault from the Sustainable Futures onslaught for the last 5 years to reap a piddly $1b:rolleyes:

I approached one of our "esteemed " Management team after a trip this week and asked him- his thoughts on this deal.???

Guess what.........he gave a "human" response!!! He said:

WE'RE STUFFED.

[YesTAM]

I guess the only answer is to elect someone who will let Qantas sink like a stone if it fails.......then we can pick up the pieces and start again.

[Wingspar]

I just love how APA will charge QANTAS consultancy fees for their expertise while still publicly listed!

They had to disclose that 4 billion will be extracted after just one year (remember they put up 3.5 billion in the bid and the rest in debt). To add to this rape, the loans are even more restrictive so when disaster strikes (I hope I am wrong) the banks will come calling. Also while they own 70 % APA cannot get their hands on the 2 billion in cash.

Airlines...how to make a million?

Invest 10!

[Chronic Snoozer]

From what I can ascertain in this article

http://www.smh.com.au/news/business/raiders-qantas-grab-sparks-call-for-review-of-bid/2007/04/13/1175971360129.html
our politicians are

a) naive
b) indifferent
c) a & b

except Costello who is not expected to change his position. When he approved the deal in March, the Treasurer said it was not his job to determine how much debt individual companies should carry on their books.

What did they think the motive of the equity partners was????:mad:

and this is just priceless...

There is also speculation that Qantas is about to issue its fourth profit upgrade since late last year, thanks to its best passenger loads in more than 10 years. The latest figures show the airline filled a record 86.6 per cent of its international seats in January.

I guess everyone knew that before they mailed in their acceptances....

[LME-400]

Apart from going bust, after APA get 70/75% of the shares, is there anything they can deliberately do to make my shares worthless ?

[pilotdude09]

Going by the sounds of things looks like we will see the demise of another national airline. I've read a few things about Ansett and this is sounding more and more like that every day.

5 years time and Virgin will be our national carrier and Tiger will replace Virgins position and Qantas will be a forgotten memory........:(
Hope not but its looking that way.

[stubby jumbo]

This whole deal is about GREED, CASH , POWER and CASH.

Private Equity consortiums through out the World could not give a rats rissole about the Host that they are about to gorge on.

Their exit strategy ( read : next host) is already mapped out in 3-5 years after they have finished their "gorging" on the Rat.

In ten years time, we'll all look back and ask one question when we're roaming around the Qantas museum in Longreach.

HOW THE HELL DID WE LET THEM GET AWAY WITH THIS....WAY BACK IN 2007??

[judge.oversteer]

Sir,
Thankyou for a fine piece of perceptive journalism, I've not seen anything so well put as you did on this whole sorry mess! Well done!

It will be interesting to see as to how this all pans out, I for one wont be surprised as to how whatever government comes out of all this in the end, let alone the cretons instigating it all.

As an aside , it is very strange that we havent heard from the likes of Cute Borg, Munt or some others on this thread. Or are they part of the t*sser management?

JO.

[rescue 1]

pilotdude09 - would have to agree with you.

Ansett was crippled by debt and the need to keep up the interest repayments.

Airlines are cyclical, the bad times will roll on, and the debt will cripple Qantas.

What makes this deal different? :hmm:

[The_Cutest_of_Borg]

Its hard to write cogently when you are seething with anger, that's why I have said anything.:mad: :mad: :mad:

[YesTAM]

Lets just suppose that for the last five years or so, you have been making money like mad....

You hide as much of it as you can, and you still announce a billion dollar profit while claiming that you are a 'legacy" carrier and retrenching staff as fast as you can,,,,because you are a poor and simple legacy carrier.....

So poor you.... competing against Government supported carriers, state run airlines, down on your luck, being thumped by competitors....and you have to retrench staff and hire foriegners to do their work...because nothing less is sustainable.....And you still stuff money into the hollow logs and make a billion profit, while crying poor to your staff.

So eventually the hollow logs are full to bursting. You are still crying poor to your staff and replacing them with foriegn labour because "business is so bad". The situation is so 'bad" that you cannot hide any more profits, so your story about needing to retrench staff and replace them with foriegn labor is going to sound a little thin. So what do you do?

Well, you can't go to the market and explain that instead of making 1 billion profit, the figure is closer to two billion, so you need to retrench more staff can you?

The obvious thing is to go private isn't it? Then you can empty the hollow logs without anybody watching can't you? You can still claim to be a poor little legacy airline while retrenching staff can't you? Nobody can see your accounts if you are private can they? The hollow logs can be emptied in secret.


The fact is that there are no auditors in Australia that can even understand what or where the "hollow logs" are. I used to regularly play with the Auditors sensibilities, ten minutes in the cockpit of a 767 would do nicely. I discussed the matter with a former seriously senior financial person from an competitor airlline today, and his view paralleled mine......... the deal is not in the interests of shareholders, but that is only my opinion, and everything about the bid is assuredly legal......

[Spaghetti Monster]

Well, it's starting to look as if this

http://www.theage.com.au/ffximage/2006/12/14/15B_QANTAS_wideweb__470x252,0.jpg


may just achieve lasting notoriety as one of the most infamous and disgusting images in Australian aviation and business history.:yuk:

Sure hope I'm wrong.:(

[Capt Kremin]

http://www.smh.com.au/news/business/qantas-raiders-may-share-spoils/2007/04/12/1175971263360.html

Even if the shares go down then you are covered for at least $2.23 per share.

I think APA have shot themselves in the foot, particularly with retail investors. I am thinking of buying more shares now!

[YesTAM]

Ohmigod, the financial press are actually smelling the same rat that I am !!!!! "Capital Management Review" indeed!

To me that translates to the "hollow logs" are bursting at the seams with cash!

To put it another way, its not a broken down Holden they are selling under all the mud and slime they have heaped on it - its actually a Rolls Royce!

"Legacy Airline" indeed! Its a cash generating powerhouse, but they cannot keep running the story about being a poor little legacy airline and getting rid of Australian staff and at the same time generate massive windfall profits can they?

The profits have to be stripped out in private so that they can still run their "legacy story" and no one knows any better.

So now do we understand why the management is going to be so munificently rewarded by APA? Guess who knows where the hollow logs are and whats in them. Whats the book value of the engines these days guys? Whats the market value vs. the book value of your spares? How much can you trim working capital guys? Whats the state of your superannuation funds boys? I watched a shipping line takeover another and finance it out of the surplus in the Super fund.

I am sure however that everything is perfectly legal and above board, and complies with continuous disclosure rules.

[lowerlobe]

YesTAM...Well said...

or another way of putting it..

"If it looks like a duck,sounds like a duck and walks like a duck you can bet money it's a duck..."

[Capt Kremin]

http://www.smh.com.au/news/business/qantas-suitor-faces-growing-resistance/2007/04/16/1176696758582.html?s_cid=rss_smh

[stubby jumbo]

OK.....we've all seen Capt Travolta swanning around as the QF " Ambassador -at-Large. BIG DEAL:rolleyes:

I reckon we have our own working for the SMH.
Each day his news stories on the rat are objective and show no fear.

Hip Hip Hooraay.

Finally someone in the press with the gonads to stand up to the bullies in the Qantas spin team/Public Affairs.

Unlike some of the other lackies on the " Secret Press Upgrade list".....he has got the APA goons squirming each morning as they trudge across the lawn to pick up their morning copy.

Love it !!!:D

[Alien Role]

:hmm: Does this whole thing seem something familiar to the early 80's when 2 "equity partners" bought Ansett?
As YesTam aptly describes, where did the "hollow logs stuffed with cash" disappear to?

So why did TNT / NEWS buy Ansett - CASHFLOW!!
Think back to how large those two Corporations were when they bought Ansett and how they were able to grow from then on by borrowing huge ammounts to finance their respective global expansion; based on what? cashflow from Ansett.

And how much did they re-invest in the "cashcow" -
And what did they do when it had served it's purpose?

Yes, they brought in some "airline management guru" (from Hong Kong if I remember rightly) who proceeded to flog off assets such that Ansett miraculously made a huge 6 months profit.

It was then sold to "the incompetants" ---- the rest is history !!!!!!!!!!!

Role on...

[lowerlobe]

AFP - Wednesday, April 18

SYDNEY (AFP) - The private equity consortium bidding to take over Australian national airline Qantas said Wednesday that its interest in the carrier had dropped to 28.86 percent from 30.06 percent a fortnight ago.

It is the first time that the Airline Partners Australia (APA) consortium behind the 9.0 billion US dollar bid has experienced a fall in acceptances since it launched the offer late last year.

APA said a number of institutions had opted to sell their stock below the 5.45 dollar (4.36 US) a share offer price ahead of the May 4 deadline for the consortium's bid.........

My question is ...If APA did not buy the shares who did?

[Taildragger67]

Anyone could've bought - it's still (as at today, at least!) a listed company with shares freely trading on the stock market.

Indeed APA may have actually bought only a very small number to date - the bulk of what they've got are simply commitments to sell to them, some of which can, apparently, be rescinded.

[W800i]

Well done to everyone on a interesting thread. My two cents worth

- If you own Qantas shares and your happy with the performance thus far why sell? Your up for capital gains tax as well as trying to find somewhere else to put your money.
-APA have apparently under written the costs of fellow bidders to the tune of $35million. Thus APA have a very powerful insentive to make this bid fly.
-I wonder if their is a legal eagle reading this thread as to the appropriatness of a board staying in situ whom have agreed to a bid that as yet has not received at the least a glowing response from shareholders. After recomending the bid would it have been wiser for the board to stand down and be replaced with a new management team to take over the running of the airline in the interim?
- Warren Buffetts view re airlines is interesting. The other quote I have in my mind when Qantas management refer to the stockmarket not truly valuing its shares is "in the short term the stock market is a voting machine, in the long run its is a weighing machine" I think Benjamin Graham wrote this quote. I think the inability of the current management to grow the business consistently each year is the reason for its under performance on the market. Considering Buffett is the 3rd wealthiest man in the world and shares in his holding company Berkshire Hathaway will put you back over $100,000 US I take notice of any of his opinions. He has 40+ years of runs on the board.

The only negative statement re APA generally that I would make is that they are absorbing a mangement team very strong on financial wizadry but very weak on solid business building skills (IMHO). Starting Jetstar and Australian airlines not withstanding! I think one has failed and with the near entrance of tiger and perhaps a virgin lite the pressure on this new vehicle will be imense. I also note that investments in Asia have thus far not been stellar performers. Maybe it would have been wiser to concentrate on the higher yield higher service level mainline operation than dilute your airline product. Perhaps some real effort in growing the fantastic transport/ catering and engineering assets that Qantas own, making them into growing and valuable parts of the Qantas group eg like TOLL have done. I dont know? Perhaps the extremely generous levels of pay and options being given to Australian company executives is another area that should be looked at? Wishful thinking I know. I mean once you own your house and car how much do you really need to live on in this great country??

Current shareholders are rightly asking what specifically is it that APA can achieve under a private highly indebted structure that cant be achieved under the current public structure. The fact that the CEO has to spend some time briefing analysts that in his view are a pain in the bum and dont understand business is a little shallow in my view.

Qantas have a fantastic brand and should have a bright future. Lets hope the management guys are up to it!!!!

[prairiegirl]

"So can anyone guess who gets the blame if Qantas gets into trouble? Thats right - not APA - the Government for letting it proceed! Can you imagine the public outcry if Qantas announces its in financial trouble? How big do you think the demonstrations would be if Qantas announces that it is considering a takeover bid by Koreans or Chinese companies? "we tried our hardest" APA said "We thought we could succeed, and so did the Government" says APA. But guess who wears the stink? Thats right! The Government!"

Interesting quote


I am not a QF employee. I have a vested interest in how QF spends their money on those silver tubes with the little wings attached.

I think that APA's resolve to get this done has been grossly underestimated by several QF investors, AIPA and other Unions. The pieces, while a bit jagged, all fit and have fit all along. APA would never have entered into this without plan A,B,C,D,E,F,G,H...... you get my drift.

Additionally, APA would not have entered into this without recognizing that this is an election year. They don't want to muddy the waters for Howard (seems he does a fine job of that himself) or for his potential successor.

And most importantly in this puzzle, APA would not have entered into this without having a good sized safety net. Australia has already suffered the loss of Ansett, they will not let their QF suffer the same fate, under any circumstances. Australian emotion over the potential demise of QF is the ace in the hole for APA.

It is an interesting time to be affiliated with QF, be it by employment or investment. Regardless if APA takes over of GD and gang carry on, times are going to change in the very near future. How we adapt to that change will be up to us.

[AEROMEDIC]

Overseas hedge funds did. They bought with the comfort of the offer price and will sell out to APA at a moments notice come May.
So, it does not look good at all for Qantas employees in Engineering. They will be the first victims of APA (after a "suitably civilized pause") as they are not employed in a money making arm of the Qantas group.
The first steps of the APA business plan will outsource what can be provided CHEAPER for greater profits.

Morals, Ethics and Sentiment have no place in the "new" Qantas.........so stand by and hold onto your hat because it's REALLY going to "hit the fan" when APA get going!!! :*

[AEROMEDIC]

:(
(Missed posting title)

[mrpaxing]

just to add a bit of facts to your views. Qantas has returned 14,7 % return for the last 5 years or so. the business has grown substiantlialy in these times with the addition of star express/ 50% australia post express/cargo business in asia/ J* domestic and international and othres. look at the last 5 AGM reports and it gives you more details. why the share price hasn,t performed as well is anyone guess. then again warren buffett wouldn,t invest in airlines either. too many variables and too much government interferences:{

[roamingwolf]

Boys and Girls
The share price of any company is decided by how the company is looked at.With us GD puts the company down at every opportunity even when the news is good .So anyone from mums and Dads to anyone else watches him and thinks ohh I'll give QF the flick and buy shares in....

More than a few people have suggested that this was part of his plan but who knows maybe he is just a half empty glass kind of guy

[speedbirdhouse]

If the sale doesnt get up and "Saint Darth" doesnt get his AUD $64 million how will he afford to set up the orphanage?

The one that he planned to build to care for the needs of the "cast off" illegitimate children of Australia's Corporate, "Elite"............

[desmotronic]

My question is ...If APA did not buy the shares who did?

AFR today reported that recalcitrant shareholders Balanced Equity Management and Global Asset Management and other parties associated with UBS investment bank have increased their stake in Qantas apparently with the intent of holding out for a higher bid to mop up minority shareholders.

[lowerlobe]

This is something that bugs me about all of this and that is that half if not more of these financial groups do not give a rats backside about QF or whatever company they buy shares in.

They are only in this for what they can syphon out of the market.

[Taildragger67]

Lowerlobe,

By "financial groups", do you mean the likes of UBS GAM and Balanced, ie. the 'institutions'?

If so, you're right - they invest in companies in order to extract income from them, by way of dividend and capital growth.

You should hope they do very well at it, as it's very likely that part of your wherewithall in your retirement will depend on their success.

"Institutional investors" are the AMPs, BTs, MLCs, etc. of the world - who still have faaaaar more assets under management than the hedge funds & private-equity people. In the industry they're known as 'real money' (as opposed to leveraged money in the hedge fund & PE caper); the non-glamourous, but generally pretty dependable, end of the spectrum. They have a legal duty to do their level best to provide good returns to their policyholders (ie. the mums & dads). They also have to ensure that, as companies, they do the best for their shareholders.

[fantasyland]

APA have notified the ASX of a drop in acceptances for its buyout bid for the second time since it dropped its acceptance level to 70%.

Refer to APA's 'Update on Relevant Interests and Institutional Acceptance Facility (IAF)' statement, sent to ASX on 20 April 07.

Previous total interest 28.86%

Current total interest 27.48%, a 1.38% drop.

Credit Suisse also notified the ASX of an increase in its holdings of QAN on 20 April:

Previous voting power 7.20%, Current voting power 8.54%, up 1.34%

It looks like credit suisse picked up a 1.34% when the IAF went down 1.38%. Is credit suisse one of the mobs bankrolling the takeover? If so, it looks like they are buying up stock as other institutions get out on the open market, to help push the deal through.

Any other thoughts?

[desmotronic]

Qantas Substantial Shareholders List

Date of Change Shareholder Name Shareholding % Shares Held
22/08/2006 UBS Nominees Ltd 209,165,998 10.85
16/04/2007 UBS Asset Management 226,221,751 11.40
18/04/2007 Credit Suisse First Boston 189,526,089 8.54
30/03/2007 Deutsche Bank AG 211,623,753 10.66
20/03/2007 APA Limited 226,018,981 11.39


Cut and paste from an online broker, data could be a few days old.

[Taildragger67]

Fantasyland,

It doesn't look like CS are high up in the debt syndicate, although they could well be lower down in the pecking order.

It's in section 5.3 of the Bidder's Statement (http://www.airlinepartnersaustralia.com.au/resources/APA_Bidders_Statement.pdf), go down to page 47.

[roamingwolf]

As a well known senator said this deal has hair on it and i reckon this deal might bite more than a few people before its over.

[YesTAM]

I can no longer post my suspicions about the APA bid, except to say I do not believe it is in the best interests of current shareholders based on nothing more than intuition. I believe there are hollow logs stuffed with cash all over Qantas, just waiting to be discovered by the new owners.

The Board are restrained by requirements of corporate governance to be prudential. The private Qantas will have no such constraint - and they are relying on the Australian Government to act as a safety net and virtually guarantee there profitability through keeping out competitors.

Looks to me that we will see sharply increased airline ticket prices and a further decrease in service levels if this deal goes through.

Furthermore, once they have gutted the airline and resold it back to the mug punters on the sharemarket, its returns will be unspectacular because of the need for its Board to apply prudential standards and build up reserves - the very reserves that are going to be stripped out shortly.

However, I guess approving the deal is Costellos ticket to eventual leadership of the Liberal Party. You know, it's a Sydney thing.

[lowerlobe]

YesTAM..Very well said until you lost it with the Sydney thing !!!!

[blow.n.gasket]

At least it's better than Melbourne!:ouch: :eek:

[Going Boeing]

I had a phone call from the APA call centre last night which would indicate that they are still desperate to get every share possible. It may not be a slam dunk to get even 70%.

I've been writing to the PM, Treasurer, Minister for Transport and my local member during the last week because the latest information indicates that this whole deal was a setup. Qantas wasn't approached by APA - I believe that Dixon had a hand in organising it. :ugh: :ugh: :ugh: :ugh: :ugh:

[inthefluffystuff]

YesTam

I have read your post and you make very good sense,had a shot at you on the other interests (BH) you posted but thanks for the post on this as it is very well put.

[desmotronic]

Although I am not yet convinced the APA bid is bad for anyone except of course mainline employees, the silence from QF management is positively deafening which in itself speaks volumes.

[Taildragger67]

Granted, I'm not 100% sure of securities law in Australia (especially with respect to advising on securities) but I am rather concerned every time I see a quote from Mansfield or any of his APA fellow-travellers along the lines of "if this bid fails, the Qantas share price is almost certain to fall".

Are the qualified (as financial advisors) to give such 'advice'?

It seems pretty logical that the share price would fall as APA (and its members) might possibly seek to offload their holdings; however if what the chap from Balanced said is right, then there might soon be buyers popping out of the woodwork. If what Mr Sissons said is correct, then that would suggest that the APA bid is actually artificially dampening the Qantas share price.


The above is not to be construed as advice of any sort; it is merely a personal opinion made on the basis of no formal research into the company concerned.

[YesTAM]

Going Boeing!!!!! You said you believed Dixon approached APA??????????

Can you substantiate that???????????

Should such an allegation be correct, it would suggest that I am correct in believing that Qantas has been crying poor while all the time it's been making hay and stuffing it in hollow logs, but has now reached the point that such a strategy is no longer legally possible, all hollow logs such as depreciation charges, prepaid expenses, refundable aircraft deposits and suchlike being stuffed to bursting.

It would seem that some fund managers share my belief that the APA bid is not a fantastic once-in-a-lifetime offer for a broken down, worthless, "legacy" airline on its last legs that should eagerly be snapped up by keen shareholders.

To put it another way, its not a worthless beaten up Holden stuck under all the mud and hay Dixon has camouflaged it with, its a Rolls Royce of a cash generator and its trunk is stuffed full of hundred dollar bills!

[mrpaxing]

Page 2 of 2
Whichever way you look at it, the shareholders are passengers on a one-way trip to nowhere.
"THE company at law is a different person altogether from its subscribers." (Lord Macnaughton, House of Lords, 1897)
"Shareholders are not in the eyes of the law part owners of the undertaking. The undertaking is something different from the totality of the shareholdings." (Lord Justice Evershed, House of Lords, 1948)
So who owns Qantas? The question is not as silly as it seems. When I say I own my house, everybody understands that I can use it for my own enjoyment and dispose of it as I wish, subject to the relevant planning laws. But when somebody buys shares in Qantas, the shareholder has none of these rights, apart from the right to sell the shares.
Qantas shareholders (apart from its directors and senior executives who also have shareholdings) have nothing to do with the running of the business. So rather than asserting the shareholders own Qantas, it is more accurate to say that the Qantas shareholders own their shares in Qantas.
So who owns the company? This question is less important than, who is responsible for the management of the company and in whose interests? Only the directors are responsible for the company as an ongoing entity in itself as distinct from its employees, its shareholders, its creditors and its customers, who have interests in aspects of the business.
The idea that the directors of a public company are responsible only to its shareholders is a recent idea, largely promoted by neo-liberals such as Milton Friedman, and it has gained popularity with the rise in the threat of hostile takeovers. The interests of shareholders may be synonymous with the interests of the company, but not always.
Even if APA succeeded in making Qantas a private company, APA's structure ensures the liability of the owners will be limited to the money put into the business by APA. And based on the information available thus far, that will only be about 25 per cent of the liabilities that will be created as part of the takeover package.
But if directors operated according to the idea that their responsibility is to shareholders rather than the company itself, how do they resolve conflicting shareholder interests? These include those who would prefer for tax reasons a share buyback against those who prefer dividends, or foreign shareholders who are not subject to capital gains tax against local shareholders who are, or those who want immediate capital gains because they want to exit the company against those who are interested in a long-term stream of earnings.
Apart from limited liability, the main advantage of listing on the stock exchange is the listing provides liquidity and a vehicle for speculation against an asset or collection of assets that are fundamentally illiquid. Even so, some businesses in energy, telecommunications and transport (including Qantas) that have been privatised in the past decade are still seen as providing a public service.
There are two models of corporate responsibility, according to British economists John Kay and Aubrey Silberston, who wrote a seminal study of corporate governance in the mid 1990s. These are the Anglo-Saxon agency model adopted by Britain, North America and Australia, where the company interest is served as a by-product of maximising shareholder value, and the trusteeship model common to Western Europe and Japan, where directors are expected to weigh the balance of the conflicting interests of current shareholders with the interests of present and future shareholders, employees, customers and the public.
The trusteeship model, which is still embedded in the law and practised increasingly in the breach, fits best with the prime responsibility of management to enhance the long-term development of the capabilities of the business.
The agency model, which the initial bid by the APA partners pretended to address, stands in direct conflict with the role of the sharemarket, which is to divorce the time horizon of investors from the time horizons of the companies in which they invest.
What would be the response of shareholders if Qantas unions proposed a deal in which they got $400-500 million from the company in fees and an up-front payment of $4 billion financed by debt in return for a cut in wages offset by a profit-sharing deal? Union claims are weighed in the balance against the interests of the public and company interest. Why not shareholder claims?The point is, faced with a Treasurer who is incapable of acting in the public interest, unless directors weigh the interests of shareholders against the interests of the company, who is there to do the job?
The public and shareholders who look at their Qantas shares as an annuity rather than a vehicle for speculation have been badly let down by chairman Margaret Jackson and chief executive Geoff Dixon, by whichever criteria of directors responsibility is used.Either the two of them were remiss in not returning $4 billion in funds to shareholders before APA made its bid or they failed in their fiduciary duty by not recommending against the takeover proposal when they knew that it involved APA ripping $4 billion out of the company. Let's be blunt. Either the directors have been guilty of running a lazy balance sheet or they have not. If not, they are recommending a bid that endangers the long-term viability of the company. Worse, they expect to profit personally if the APA bid succeeds.
kdavidson @theage.com.au
It says it ALL. Dicko & Jackson are an absolute disgrace:yuk: :yuk: :yuk:

[Going Boeing]

YesTAM

No I can't - as I said it is my belief. Dixon has for a number of years been talking down the share price as well as stating publicly that the cost of borrowing money would be cheaper (access to patient capital) if Qantas was a private company that didn't have to meet all the reporting requirements to the ASX and shareholders. Even if he didn't directly have a hand in the organising of it, he certainly set up ideal conditions for an equity buyout which then gives him the access to capital that he wants. Shame about the massive debt that would be created.

[QFinsider]

Dixon was asked that very question at a media briefing.
He was asked whether they approached APA or APA approached Qantas. He looked at Mansfield and they both answered no comment.
Why?
Furthermore as alluded to above the fiduciary duty of a director is to act in the interests of the business owner.
Funnily enough APA mention they are going to rip $4 billion from Qantas in the first year. Which given Dixon's continued insistence to relaxing the Sale act and allowing more foriegn capital (as we struggle at present-according to him) I find highly suspicious that him or any other director has made NO mention of the fact that the 'Capital required to finance new purchases' blah blah will be made even harder to source when losing $4 billion to the consortium.:E