B A Lert
8th May 2007, 03:34
The following article appeared in The Sydney Morning Herald on Monday 7th May 2007.
Big blip ahead on the market radar
Paul Sheehan
May 7, 2007
Greed is not good. The market is not perfect. The $11 billion bid to make Qantas a private company is dead, in the worst possible way. The failure of this deal is a victory for no one and a vindication of nobody. It shows market capitalism at its worst.
Qantas is now vulnerable. The chairman of the board, Margaret Jackson, is ill, and a spent force as chairman. The chief executive officer, Geoff Dixon, is gutted and is considering his future. The chief executive of the Qantas low-cost subsidiary Jetstar, Alan Joyce, will soon go.
As of Friday, Qantas is foreign-owned or foreign-controlled, which is a breach of the law under which Qantas operates as a public company. More than 50 per cent of the Qantas share register is controlled by hedge funds. Some of them are hiding their stakes through financial devices known as "cash-settled swaps". They will have to go.
It should be an interesting morning on the Australian Stock Exchange.
Amid all this instability, a second takeover attempt could emerge. So there are at least six different plots developing simultaneously. Yet none of them is the main story. The main story is that the bid for control of Australia's most iconic and symbol-laden brand was a manifestation of something much bigger than Qantas. We have entered a new phase of global capitalism.
The stock markets of the advanced Western nations, dominated by big investment funds, are more cautious, more regulated, more highly taxed, more index-driven and less able to leverage debt than private capital. This bureaucratic form of capitalism, driven by market indexes and superannuation funds and mutual funds, is thus being challenged by a more entrepreneurial private capital.
In the era of a long bull market, historic transformations in China and Russia, and the giant baby-boom generation investing for its retirement, a huge weight of money is chasing investment opportunities. These are perfect conditions for mediocrity to flourish in the markets. Private equity groups seek to exploit such mediocrity.
A classic example has been the market's treatment of Qantas. On November6, the day before news of a bid for Qantas begin to leak, the collective wisdom of the market was that Qantas was a $4.20 stock. This was about a quarter less than the bid which would emerge. Ever since, the market has assumed retroactive wisdom about the glowing potential of Qantas. The bid was subsequently caught in a perfect storm as the entire sharemarket surged by 15 per cent in the months after the bid was announced. Qantas also hit a new growth cycle and had to revise its profit forecasts upwards. The bid became too cheap as it was overtaken by events.
More market mediocrity was revealed at 7pm on Friday, the deadline for the closing of acceptances for the Airline Partners Australia bid. It became clear that most of the hedge funds holding speculative positions had failed to commit to the bid, hoping to extract more from the deal. When the bid reached only 46 per cent by the deadline, short of the required 50 per cent acceptances, the bid automatically lapsed.
Over the next five hours there came an absurd soap opera. As the deadline approached, Macquarie Bank (part of the APA consortium), advised the office of Samuel Heyman, an American billionaire stock raider who had accumulated 10 per cent of Qantas stock after the bid was announced, that the bid was failing to reach 50 per cent. At 6.55pm, Heyman's office advised that his company would not be tipping its shares into the acceptance. Four hours later, after APA had announced the bid had failed, Heyman tipped half his stock into the bid, pushing it over the 50 per cent mark.
Too late. The Takeover Panel, which acts as the umpire in corporate takeovers, could not possibly agree to this. One rule had to apply to all. Yesterday, the panel refused to even consider allowing an extension for Heyman to comply with the deadline. Unless another bid emerges out of the woodwork, Qantas shares will fly south this morning.
The market has also been myopic in the widely-held assumption that Qantas is going to sail on untroubled to the price level of $5.45 offered by APA and then beyond. It may. But this requires two dubious assumptions: one, there is little difference between a public company and a private one; and that the sunny days are long-term. Qantas may be a superb company, but market turbulence lies ahead.
Over the next four years, the equivalent of an entire large new airline will be operating in and from Australia, an airline with lower costs than Qantas. The pressure will come from several directions. From the Persian Gulf, three wealthy carriers - Emirates, Etihad and Qatar Airways - all super-aggressive, high-growth, high-quality carriers, have targeted Australia. Emirates and Etihad are flying 53 flights a week from Australia to their big hubs in the Gulf. Qatar begins service in November. Within three years, they will double their collective presence. They have the rights to increase capacity to 140 flights a week within four years.
Singapore has long harboured a desire to make Australia the home market it does not have, and Singapore Airlines will be viewing the Qantas imbroglio with acute interest. The low-cost Tiger Airways, majority-owned by Singapore Airlines and the Singapore Government, starts domestic operations in Australia this year and will link to its Asian network. Another low-cost carrier, Air Asia, based in Kuala Lumpur, begins service to London in July (as Air Asia X) and plans to extend to Australia.
A third hit will come on the Pacific, where the most lucrative of all Qantas routes, Sydney-Los Angeles, will see the arrival of Virgin and probably Air Canada next year. And then there is peak oil. Oil prices will be much higher in four years. Turbulent times lie ahead for Qantas, not just this week.
The Qantas spin machine :suspect: is really working well for this piece to appear on the 'Opinion page'. The writer is not an aviation writer of any note so I wonder why the SMH would allow rubbish like this appear in its august pages.:eek: :eek:
Big blip ahead on the market radar
Paul Sheehan
May 7, 2007
Greed is not good. The market is not perfect. The $11 billion bid to make Qantas a private company is dead, in the worst possible way. The failure of this deal is a victory for no one and a vindication of nobody. It shows market capitalism at its worst.
Qantas is now vulnerable. The chairman of the board, Margaret Jackson, is ill, and a spent force as chairman. The chief executive officer, Geoff Dixon, is gutted and is considering his future. The chief executive of the Qantas low-cost subsidiary Jetstar, Alan Joyce, will soon go.
As of Friday, Qantas is foreign-owned or foreign-controlled, which is a breach of the law under which Qantas operates as a public company. More than 50 per cent of the Qantas share register is controlled by hedge funds. Some of them are hiding their stakes through financial devices known as "cash-settled swaps". They will have to go.
It should be an interesting morning on the Australian Stock Exchange.
Amid all this instability, a second takeover attempt could emerge. So there are at least six different plots developing simultaneously. Yet none of them is the main story. The main story is that the bid for control of Australia's most iconic and symbol-laden brand was a manifestation of something much bigger than Qantas. We have entered a new phase of global capitalism.
The stock markets of the advanced Western nations, dominated by big investment funds, are more cautious, more regulated, more highly taxed, more index-driven and less able to leverage debt than private capital. This bureaucratic form of capitalism, driven by market indexes and superannuation funds and mutual funds, is thus being challenged by a more entrepreneurial private capital.
In the era of a long bull market, historic transformations in China and Russia, and the giant baby-boom generation investing for its retirement, a huge weight of money is chasing investment opportunities. These are perfect conditions for mediocrity to flourish in the markets. Private equity groups seek to exploit such mediocrity.
A classic example has been the market's treatment of Qantas. On November6, the day before news of a bid for Qantas begin to leak, the collective wisdom of the market was that Qantas was a $4.20 stock. This was about a quarter less than the bid which would emerge. Ever since, the market has assumed retroactive wisdom about the glowing potential of Qantas. The bid was subsequently caught in a perfect storm as the entire sharemarket surged by 15 per cent in the months after the bid was announced. Qantas also hit a new growth cycle and had to revise its profit forecasts upwards. The bid became too cheap as it was overtaken by events.
More market mediocrity was revealed at 7pm on Friday, the deadline for the closing of acceptances for the Airline Partners Australia bid. It became clear that most of the hedge funds holding speculative positions had failed to commit to the bid, hoping to extract more from the deal. When the bid reached only 46 per cent by the deadline, short of the required 50 per cent acceptances, the bid automatically lapsed.
Over the next five hours there came an absurd soap opera. As the deadline approached, Macquarie Bank (part of the APA consortium), advised the office of Samuel Heyman, an American billionaire stock raider who had accumulated 10 per cent of Qantas stock after the bid was announced, that the bid was failing to reach 50 per cent. At 6.55pm, Heyman's office advised that his company would not be tipping its shares into the acceptance. Four hours later, after APA had announced the bid had failed, Heyman tipped half his stock into the bid, pushing it over the 50 per cent mark.
Too late. The Takeover Panel, which acts as the umpire in corporate takeovers, could not possibly agree to this. One rule had to apply to all. Yesterday, the panel refused to even consider allowing an extension for Heyman to comply with the deadline. Unless another bid emerges out of the woodwork, Qantas shares will fly south this morning.
The market has also been myopic in the widely-held assumption that Qantas is going to sail on untroubled to the price level of $5.45 offered by APA and then beyond. It may. But this requires two dubious assumptions: one, there is little difference between a public company and a private one; and that the sunny days are long-term. Qantas may be a superb company, but market turbulence lies ahead.
Over the next four years, the equivalent of an entire large new airline will be operating in and from Australia, an airline with lower costs than Qantas. The pressure will come from several directions. From the Persian Gulf, three wealthy carriers - Emirates, Etihad and Qatar Airways - all super-aggressive, high-growth, high-quality carriers, have targeted Australia. Emirates and Etihad are flying 53 flights a week from Australia to their big hubs in the Gulf. Qatar begins service in November. Within three years, they will double their collective presence. They have the rights to increase capacity to 140 flights a week within four years.
Singapore has long harboured a desire to make Australia the home market it does not have, and Singapore Airlines will be viewing the Qantas imbroglio with acute interest. The low-cost Tiger Airways, majority-owned by Singapore Airlines and the Singapore Government, starts domestic operations in Australia this year and will link to its Asian network. Another low-cost carrier, Air Asia, based in Kuala Lumpur, begins service to London in July (as Air Asia X) and plans to extend to Australia.
A third hit will come on the Pacific, where the most lucrative of all Qantas routes, Sydney-Los Angeles, will see the arrival of Virgin and probably Air Canada next year. And then there is peak oil. Oil prices will be much higher in four years. Turbulent times lie ahead for Qantas, not just this week.
The Qantas spin machine :suspect: is really working well for this piece to appear on the 'Opinion page'. The writer is not an aviation writer of any note so I wonder why the SMH would allow rubbish like this appear in its august pages.:eek: :eek: