Qantas: the rush and the rorts/APA offer?

[gaunty]

Crickey Mon 24th April 2007.

11. Qantas: the rush and the rorts
A queue-bound Qantas traveller writes:
I read the stories about the great load factor figures that Virgin and Air New Zealand have recorded for March with great interest today.
Of course we've heard nothing from the mob over at Qantas and we won't hear anything from them until Geoff and his cronies have stitched up their bonuses once the APA rort is in the bag.
However, hang around the Qantas Customer Service desk (a tautology in terms a lot of the time, as customer service is not always what they deliver!!) in any domestic airport in Australia at the moment, have a chat to the staff and have a look at the forward bookings (it's easy, just try booking twenty domestic seats between two Australian hub cities in the next month - take care that you haven't inadvertently ended up on a Jetstar flight, as so many travelling public unwittingly do!!). You will quickly realise that Qantas is going gangbusters.
This isn't just an Easter rush, and it isn't just due to school holiday travel, this has being going on since at least three weeks prior to Easter. Loads have been great, in fact better than great, they've been bumper loads.
Sitting in the airport of one of our capital city airports the other day from midday onwards and there was not one spare seat on a Qantas aircraft until after 6pm.
So what are the Qantas board doing, how are these figures not material to the APA rort that's being offered up?
The opera ain't over until the fat lady has sung and either way the cards fall, when she has finished her Aria, some hard questions need to be asked of the Qantas board, of Margaret Jackson and of Geoff Dixon. Why have they sold the public a bunch of half truths and misleading pessimism?
If there's nothing to hide, why don't they release their forward booking figures and with that information their anticipated forward profit predictions?
What are they hiding and why?


Pretty much the way I saw it recently.:{ The old shell game is always the same just called more "modern" names.

[gaunty]

From the same issue.

26. Air Ned Kelly
By Ben Sandilands

The Qantas stick-up is turning into a classic example of how an educated market can be the natural enemy of a leveraged equity buyout.

The longer and more desperate a deal gets the more the public starts to ask the sort of serious questions that hold-out institutions such as Balanced Equity management, UBS Global Asset Management and Maple-Brown Abbott were asking close to day one of its announcement.

But that was nearly five months ago, an eternity for the likes of David Bonderman, the airline raider par excellence whose Texas Pacific Group was once linked by Lindsay Fox to his silly attempt with Tesna to grab the Ansett terminals under the guise of re-starting the airline.

Bonderman must be truly fascinated by some bigger opportunity than the fee fest that has Macquarie Bank in thrall.

Since late November, when the public learned what some sections of the Qantas board had known about the deal for much longer, the pleadings to shareholders to sell have become so shrill that even Alan Kohler was moved in his Saturday column to urge everyone to jump on board and go along for a fee free ride.

It was one of Kohler's best efforts yet, so good it could have written by Terry McCrann.

The jagged peaks that rise up in front of the APA bid in this incredibly long time line are the profit upgrades given so reluctantly by a Qantas management which undermined the credibility of 'we are all doomed' utterances the market has come to expect from Geoff Dixon.

Dixon has the throttles rammed forward to maximum power and the nose of the Qantas enterprise pulled as far back as the control column will go in this final effort to clear the jagged peaks of doubt that lie directly ahead of the management cockpit.

To keep to the flying metaphor, he has flown the APA Dreamliner to a point where airline pilots either get dead lucky, or dead.
The slow extraction of the truth about the deal from the babble that has gushed from APA about the urgency with which people should sell to them has made ordinary share holders as well as superannuation fund managers ponder the consequences of capital gains tax liability in this country.

Why would you sacrifice as much as half the profit you would get on a stake in Qantas in accepting the deal, and loose one of the more attractive franked dividend streams available in listed air transport among global network carriers?

The bid can succeed. There could be a last minute stampede to accept for all sorts of reasons, not all rational, and perceptions of air transport can be changed by external 'shocks' in an instant.

But at the moment the deal is like a pre-announced stick up for $4 billion or more from a bank that the hold up gang has yet to buy, using funds borrowed from other banks.

And the customers have been warned in advance that they can escape with as little as half of their deposits and none of their expected partially tax free earnings.

That kangaroo on the Qantas tails needs to be replaced with a different Australian icon, the head gear worn by the Kelly gang.

[mrpaxing]

To the point:D :D :D

[DEFCON4]

Dixon has continually destroyed shareholder value by talking the company share price down.
Declaring doom and gloom all the while knowing that the Company is in the best shape of its corporate life.
Would a shareholder class action against Dixon be appropriate?
I bloody well think so...where do I sign up?

[Keg]

Good article by Mr Sandilands. I've sledged him on PPRUNE once before (he deserved it though with his Big Sky Airlines thing back in about 2000) but he's pretty close on this one I reckon! Well done Ben. :D

[freddyKrueger]

Hedge funds hold the key to the success of the Qantas takeover

There is now an incentive for the institutions to turn their pledges into acceptances, writes Bryan Frith
April 24, 2007 IF the hedge funds that have piled into Qantas shares since Airline Partners Australia announced its $11.1 billion takeover offer want the bid to succeed, then they need to understand the necessity to act quickly. If they delay too long, the hedge funds could cause the bid to fail.

That could happen if the hedge funds consider that the minimum acceptance target which they have to satisfy is 70 per cent rather than 90 per cent. It all depends upon the timing. If APA satisfies the 70 per cent requirement at least one week before the scheduled close of the offer, the bid can be declared unconditional. But that cannot happen if the 70 per cent level is reached in the final week. In that case, APA would have to satisfy the 90 per cent bid condition and it's almost impossible that can be achieved. In which case, the bid would fail, accepting holders would have their shares returned and the price of Qantas shares would almost certainly nosedive.
It all relates to the fact that almost two weeks ago APA said it would waive its 90 per cent minimum acceptance bid condition if it received acceptances of 70 per cent or more. Hedge funds are estimated to hold 40 per cent or so of Qantas and that, together with acceptances and shares promised to the institutional acceptance facility (IAF), would be virtually sufficient to satisfy the 70 per cent requirement and ensure the bid becomes unconditional.
APA was forced into that step because of perceptions that it would be unable to satisfy the 90 per cent condition. Balanced Equity Management, which owns 4 per cent, has already ruled out its acceptance and there is widespread speculation that UBS Global Asset Management, which owns a further 6 per cent, also won't accept, although it hasn't ruled out that option.
Target holders, particularly sophisticated professional investors normally are reluctant to accept early into a bid, preferring to wait until the offer is either declared unconditional or it appears that such a declaration is imminent. That's because once they accept they lose control over their shares; unlike the US, there is no general right of target holders to withdraw acceptances to a bid. Delaying acceptance retains the ability for target holders to sell on the market.
APA hoped that lowering the minimum acceptance target would produce a flood of acceptances, but it hasn't happened. In fact, the amount of stock pledged to the institutional facility (AIF) has actually declined slightly, as target holders, particularly US investors, have opted to instead sell on the share market, attracted by the recent rise of the dollar against greenback.
Unlike bid acceptances, there is a general right of withdrawal from the IAF.
So, APA has been forced into further measures. For a start, it has declared that the bid won't be extended beyond the current closing date of May 4 - 10 days away. That's a "truth in takeovers" final statement to which APA can be held, but it's only a qualified statement, as the Corporations Act provides that the bid automatically extends for a further 14 days if APA becomes entitled to more than 50 per cent of Qantas in the final week of the offer - between April 26 and May 4.
Such an extension applies from the time the 50 per cent level is reached. So, if it is satisfied, the APA offer would be extended to somewhere between May 11 and May 18.
Moreover, APA would be free to further extend the offer if necessary, provided it did so at least one week before the scheduled closing date. APA has reserved the right to make such further extensions.
APA has also made two further concessions, which are designed to dramatically accelerate the acceptances. One is to accelerate payment to the latter of five business days after the bid becomes unconditional or May 4. At present, payment is the earlier of: one month after the offer becomes unconditional or 21 days after the offer close.
The other concession is to provide withdrawal rights to all target holders up to the time the bid is declared unconditional. Once that point is reached there is a binding contract between APA and accepting holders. The withdrawal rights lapse on the end of the offer period and can be terminated after 14 days' notice by APA. That gives holders who have accepted the bid adequate time to withdraw should they wish to do so.
It was a requirement by the corporate regulator, ASIC, as a condition for granting a modification to allow the withdrawal rights.
ASIC also allowed a general withdrawal right for target holders in relation to Xstrata's 2004 takeover bid for WMC Resources, and on that occasion a 14-day notice period for termination of the withdrawal right was also required. However, on that occasion Xstrata was successfully overbid by BHP Billiton.
The granting of a general withdrawal right means that acceptances are now on the same footing as the IAF - they can be withdrawn at any time up to the bid becoming unconditional. That, coupled with the early payment, means there is now an incentive for institutions to pull shares out of the IAF and turn them into actual bid acceptances.
That's necessary because the 50 per cent requirement which automatically creates a further two-week extension of the offer is triggered only by actual acceptances, not by a combination of acceptances and shares held in the IAF. At present, APA has bid acceptances for 12.27 per cent of the airline and a further 15.21 per cent in the IAF, an aggregate of 27.48 per cent.
Hedge funds and other foreign investors may not be fully familiar with all of the takeover provisions of the Corporations Act. One of those provisions is that a bidder cannot waive defeating conditions in the final week of an offer. Thus, a conditional bid can only be declared unconditional in the final week (and therefore able to be further extended) if the remaining conditions are actually satisfied.
Moreover, a bidder must lodge a section 630 notice one week before the scheduled close of a conditional bid advising whether the bid will be declared unconditional and/or extended. If neither of those actions is taken, then the bid must close as scheduled.
APA's statement that it will waive the 90 per cent minimum acceptance condition if it reaches 70 per cent is not a variation of the takeover offer - rather, it is yet another truth in takeover statement. While bidders can be held to such statements, they cannot take precedence over the specific requirements of the law.
Thus, if APA reaches 50 per cent of Qantas between Thursday and May 4 the bid will automatically extended for a further two weeks. But for the bid to go unconditional, the 70 per cent level would need to be satisfied within the first of those two weeks. If not, APA would have to satisfy the 90 per cent minimum acceptance conditional before the bid could become unconditional and that's almost certainly an impossible task.
If it becomes clear that the 70 per cent level won't be reached in the first week of the two-week extension, APA could further extend the bid. But that would just reintroduce uncertainty and would still mean that APA would need to reach 70 per cent at least seven days before the offer is scheduled to close.
APA yesterday sought to draw attention to that requirement by stating that investors "should note" that in the event the offer is extended beyond May 4, APA is unable by law to declare its offer free from any conditions in the last seven days of the bid (including if the bid is further extended).
It's questionable whether many investors would have understood the full implications of that statement. However, those holders who do wish to extend (which is the majority) need to recognise that unless they do so at least seven days before the scheduled close, the bid is doomed to failure.

Source The Australian (http://www.theaustralian.news.com.au/story/0,20867,21609734-16941,00.html) for research or educational use only.

[gaunty]

freddyKrueger

True and probably and in all probability it wont complete, the real question that remains is how come it got legs in the first place.

[Chronic Snoozer]

The opera ain't over until the fat lady has sung and either way the cards fall, when she has finished her Aria, some hard questions need to be asked of the Qantas board, of Margaret Jackson and of Geoff Dixon. Why have they sold the public a bunch of half truths and misleading pessimism?
If there's nothing to hide, why don't they release their forward booking figures and with that information their anticipated forward profit predictions?
What are they hiding and why?

Surely misleading and deceptive conduct - could lead to the court room if investors lose out after QANTAS goes private.

Someone still has to answer the question 'Apart from the QANTAS board and APA, whom does this deal benefit?' Apparently NONE of the other stakeholders. Why should I sell my shares to them then?

BTW Sandilands, a journo, still can't spell 'lose'.

[Zeus Ex Machina]

This deal gets up...my super gets moved out immediately.
Contacted QF Super and completed the paperwork.
I saw too many mates get burnt when Ansett went under

[desmotronic]

Increased to 27.8% acceptance today... and share price at current levels indicates the market is pricing in a 90% chance the deal will get up.


'Apart from the QANTAS board and APA, whom does this deal benefit?'

Everyone except QF employees.

[stubby jumbo]

.......hear, hear to the above.

The general masses have been sold a "pup" re: APA.We've have been fed lies,twaddle and bull excrement for the last 2 years from the QF Spin Team under the flacid banner of A LEGACY AIRLINE:yuk:

Unfortunately its too little too late.

Once our enlightened pollies signed on for P/C upgrades ( for 5 years post their retirement ! )....then the deal was almost done.

One thing I have enjoyed is reading the crawling letters from the Dame......begging shareholders "to sell....... quick".

We will only see the impact of all this in about 6 months.......can't wait :(

[YesTAM]

I'm glad some one else has raised this issue, and not me because I don't want to get sued. I think that the Board, for no particular reason, has set the company up as a takeover target. While this may be in their interest, and perfectly legal, I fail to understand why it would be in the FUTURE interest of the shareholders.

To put it another way, Qantas has been crying poor all the way to the bank...

Question: What is to stop Qantas management from doing exactly what the APA people want to do? Thereby releasing value to shareholders?

In other words, why should APA be able to "harvest" 4.5 billion from Qantas, when the current Board cannot???????

There seems to be some "learned helplessness" here.

['holic]

Spot on, YesTAM.

I have a few questions about the takeover that maybe someone with a bit more financial nous than I can answer. APA is bringing nothing new to the table, Qantas will still have the same future strategy with GD still CEO. Originally the deal was sold under the premise that APA would end up owning 100% of the shares, delist Qantas, giving them more freedom to restructure the company without being accountable to ASIC or shareholders. Bearing in mind that that isn't the case now and they will own 70-90% and the company will remain listed :

Why is this still a good deal for shareholders?
APA and the board keep saying if the deal doesn't go ahead the share price will fall, which it probably will. Yet if you consider that any long term investor would have bought shares in the range of $3.00-$3.80, the CGT that would be paid by accepting $5.45 would be equivalent to the amount the share price is expected to drop if the bid fails.
More importantly, if APA is expecting to make 15% return p.a. on shares they have bought for $5.45, why wouldn't you, as a shareholder, be asking the board "If you can do it for APA, why can't you do it for me on shares that I have bought for $3.50, where the return will be that much better? Have you truly acting in my best interest?"

Why is this still an acceptable deal for the Government and Australian people?
The fact that the government has imposed conditions on the deal going ahead shows that they want to ensure the survival of Qantas, or at least parts of it. How can they on one hand provide this protection, but on the other hand allow the company to increase it's debt to dangerous and unsustainable levels with obvious consequences?

Why is this still a good deal for Qantas as a company?
GD has been banging on for the last few years about his 'Sustainable Future' strategy only to allow any savings that have been made to be eclipsed by interest payments. S&P have stated that if the deal goes ahead, Qantas's credit rating will be downgraded to 'speculative'. How can this be considered responsible management? (Where are you aircraft? I'd like you to answer this one, mate)

Why is this still a good deal for APA?
This is the scary part. If they've revealed that they will rip $4b out of the company in the first year, what haven't they told us? This is nothing less than corporate vandalism.