The truth about Dixon Son of Kerry and Macquarie
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The truth about Dixon Son of Kerry and Macquarie
SMH 26 May 2007
THE code name was Project Suzie. It was October 1998, and Qantas Airways was about to fall prey to a hostile private equity bid. Back then, they were called leveraged buyouts. Three months earlier, an ambitious 26-year-old investment banker nicknamed "Brains" around Macquarie Bank's Sydney office had put together a team to work up the deal to take Qantas out of the public's hands. A decision by a debt-averse Kerry Packer spared it at the last minute.
But for this, the national carrier would likely have found its way into the hands of the country's richest man, one of the world's leading private equity operators, Texas Pacific Group, and Macquarie, the aggressive home-grown investment bank.
The banker, Ben Brazil, had been hired straight from university and had been quickly adopted by one of the bank's heavy hitters, Nicholas Moore, as a protégé.
It was Brazil who had convinced Ashok Jacob, the head of the Packer family's key private company, Consolidated Press Holdings, to take it to Packer.
Packer senior liked it immediately.
In the several meetings to discuss the deal, the irascible Packer patriarch labelled airline pilots "glorified bus drivers" and relished the prospect of shaking up what he viewed as an industry that did not deserve the mystique afforded it.
Meanwhile, Brazil had also convinced David Bonderman's Texas Pacific Group to join the bidding consortium.
Five years earlier Texas Pacific had bought the bankrupt Continental Airlines.
It was the deal that would catapult Bonderman into the realms of the fabulously wealthy and drive his interest in airlines.
By the time he was finished with Continental, he would be $US600 million richer.
And by that stage, his Texas Pacific had bought 20 per cent of the little-known Irish carrier Ryanair, which went on to become Europe's largest low-cost airline.
So when the opportunity to grab a slice of Qantas presented itself, Bonderman jumped at the idea.
Project Suzie's third partner was Macquarie itself, which planned to take a minor stake in the bidding vehicle. It also stood to make fees as the deal's adviser.
The deal was kept so quiet within Macquarie that Qantas didn't even appear on the list of banned stocks that employees in the mergers and acquisitions team were forbidden to trade.
Even at that stage, Macquarie could see the wealth of opportunities. All it had to do was re-engineer the airline's balance sheet.
Qantas aircraft were undervalued. If the jet debt was transferred off the Qantas balance sheet and financed through an obscure process out of New York, there would be more money available to the shareholders - all three of them.
Everything was ready to go. Project Suzie was about to be launched. But two events took place that would kill it.
First, Kerry Packer began to get cold feet. Unlike the recent Airline Partners Australia consortium, the big fella could foresee problems in the country's richest man buying Qantas. It was never going to be easy to convince the public.
Then the Qantas share price began to climb. In July, the shares were trading at $2.40. But by October they had risen to $2.67, valuing the airline at $3.1 billion. By the end of the year, the stock had hit $3.40.
There were suspicions the plan had leaked out and that someone was trading on the information.
A vast number of options over Qantas shares changed hands in a single transaction.
The Macquarie hierarchy was apoplectic. The bank was already in the firing line after one of its gun executives had been charged with insider trading, accused of using his knowledge about the TNT takeover, on which Macquarie was advising, to trade options.
The identity of the Qantas buyer was never discovered.
Then, at the last minute, the physically ailing Packer had decided the airline industry was just too big a punt; a big call from someone who spent every spare minute in Las Vegas and London casinos.
The Asian economies had been in meltdown for a year and regional tourism was hardly at its sparkling best.
James Packer, too, wasn't overly convinced of the financial merits of a private equity bid for Qantas.
The deal may have fallen over but Brazil turned it into a personal win.
Through Project Suzie he had become close to the Packer organisation.
He later accepted an offer to jump to Consolidated Press Holdings, before heading back to Macquarie Bank where he now is employed in its London office.
According to directors at the time, not a whisper of Project Suzie reached the Qantas board.
Macquarie, in particular, was careful that it never did. It was then running an extremely profitable aircraft leasing business, which would have been damaged by news of any hostile bid drifting out to the Qantas board.
"I have no such recollection of any bid coming forward," said veteran director Jim Kennedy, who served on the Qantas board between 1995 and 2006.
"I'm sure Gary [Toomey, Qantas's finance director] would have told us at the time," he said.
It is understood Kerry Packer told senior Qantas executives only just before his death in 2005 that "people on his behalf" had looked at the airline.
It would take another eight years before a Packer was again involved in a deal to take Qantas out of public hands. This time he would occupy a different seat at the table.
WHEN James Packer's name was raised at the press conference to announce the Macquarie-led $11.1 billion friendly takeover for Qantas five months ago, no one realised the extent of his connections.
Chairman Margaret Jackson fielded a question about Packer's potential conflict of interest, given his large personal holding in Macquarie Bank and his seat on the Qantas board, and could barely disguise her disgust.
No one questions a Packer, let alone the integrity of a Packer.
Had Packer absented himself from the takeover discussions because he was the single biggest individual shareholder in Macquarie, the bank organising the $11.1 billion bid?
"I think that's absolutely an absurd suggestion … of course I did not ask James to remove himself from the decision-making process," Jackson fumed.
"I don't believe that James had any conflict of interest, and I find it offensive that you might even suggest that."
James Packer knew a lot more about the risks and possibilities of a private equity grab for Qantas and was in a better position to advise Qantas shareholders than most of the people watching the friendly bid unfold that day realised.
Indeed, Ben Brazil's nearly successful attempt to pull Kerry and James Packer across the line on a Qantas bid was not the first time Macquarie had lusted after the airline. And once again, Texas Pacific and David Bonderman were coming along for the ride. For Macquarie, it was turning into an obsession.
Several years earlier, the Herald has learned, Macquarie worked on an even earlier version of Project Suzie. Back then, in late 1996, a tilt at Qantas had been conceived by Nicholas Moore.
Moore believed Qantas "could be geared up to a greater level", says an insider. This deal never went beyond concept stage and certainly never reached the Qantas board, according to board sources. Moore declined to comment when contacted by the Herald.
While the Packer family's connections to Qantas were closer than the public realised, there were also strong links between the airline and Macquarie Bank.
In August 1995 Macquarie had come up with a debenture, called a Qanmac, which allowed foreigners to gain exposure to Qantas through an equity instrument, thereby overcoming the constraints of the Qantas Sale Act which blocks foreign investors from owning more than 50 per cent of the airline.
James Strong was then running Qantas.
Under Strong were two ambitious executives - finance director Gary Toomey and retail and marketing head Geoff Dixon. Both desperately wanted Strong's job when he retired.
"You were either in Toomey's camp or in Dixon's," says a Qantas insider.
"It was one or the other."
Sworn Toomey supporters included Peter Gregg, the aggressive accountant who was later to replace him when he went to run Ansett, Peter Lucas and a young Grant Fenn. All had plenty of contact with Macquarie and Lucas now works there.
So when Macquarie Bank approached Dixon and Gregg late last year, it had supporters on the inside.
Gregg was onside right from the beginning. And with the help of a $100 million-plus incentive, Macquarie convinced Dixon the deal was a goer.
It also believed it had support on the Qantas board. According to one board insider, James Packer thought the $5.45-a-share offer was "compelling" when the price was hammered out in December last year.
Packer and Dixon were also very close. Not only had Packer joined the board of Qantas board in 2004, in May last year, Dixon had reciprocated. He agreed to join the board of Publishing and Broadcasting when James Packer restructured the board and the company after the death of his father.
According to Qantas board sources, Packer was asked to join Qantas because of his sway in Canberra. And Margaret Jackson and Dixon relished the prospect of being able to take advantage of Packer's broader perspective, they say.
Insiders say he soon began giving his view in management strategy briefings to the board. He was sometimes at odds with Dixon on strategic matters.
However, since the private equity grab for Qantas failed, Packer made it plain to those around him that he wanted to quit Qantas.
Even six months earlier - around the time Airline Partners bid for Qantas became public - those close to Packer claim his busy work schedule with casino developments from Asia to Russia meant he was increasingly stretched to find time for Qantas.
The word began to leak out that Packer wanted off the board. Last week, Jackson's departure provided the catalyst.
Also, Packer believed that Margaret Jackson should not bear the brunt of the deal's failure on her own. "Personally, he felt it was a way to shelter Margaret," says one insider.
As Jackson defended Packer's integrity in brutal fashion at that December press conference, she was also a guardian for the Packer business interests in a broader sense.
The now 54-year-old Jackson was invited onto an advisory board of CPH soon after Kerry Packer died in December 2005.
She and her husband, former lawyer cum ski resort owner, Roger Donazzan, are also on the guest list for his wedding in France next month to Erica Baxter.
If James Packer's links to Qantas stretched further than anyone realised, his association with Macquarie was certainly out in the open.
Until February this year, he was Macquarie's largest individual shareholder. Indeed, the 15th biggest shareholder with 1 million shares, outdone only by the big investment institutions.
A search of the Macquarie Bank register this week, however, revealed that Packer sold his entire Macquarie stake in two tranches in January and February this year.
It was less than two months after the bid had been launched.
No one at Qantas management is ruling out another tilt from Macquarie Bank.
But given the sensitivities of a private equity buyout for the national icon, neither does anyone expect it to come until after this year's federal election.
Dixon acknowledged before investors on Thursday that Federal parliamentarians were in no mood to entertain any lobbying from the airline.
They are still incensed about revelations that APA planned to strip $4.5 billion out of the airline - an admission made only after getting approval by Federal Treasurer Peter Costello to proceed with the $11.1 billion bid.
Some MPs feel they were misled by the consortium.
"I don't think I'm silly enough to put my head up in Canberra between now and an election with either side of politics to talk about wanting to change the Qantas Sale Act given the activities of the past seven months," Dixon says.
Some politicians now refer to APA as the "Gordon Gecko consortium".
"I don't think there would be a good reaction in Canberra at the moment to such as move," Federal Liberal MP Bruce Baird says. "People are glad it's off the agenda."
Neither is Macquarie Bank expected to receive as friendly a reception next time around.
Despite being offered the chance to eventually own 5.5 per cent of the carrier under private equity ownership, Qantas senior management has indicated it would reject any future approaches.
Dixon is also making sure he leaves the cupboard bare for Macquarie the next time it runs the rule over the airline.
The Macquarie plan involved an elaborate asset strip of the airline. Not that it ever willingly admitted to it. Businesses would be sold off. And the balance sheet raided.
Now Qantas is planning to divide the spoils among its existing shareholders - something it said it couldn't do previously as a public company.
There will be a buyback worth an estimated $2 billion.
The frequent-flyer plan might be sold off. Freight services also might be on the block. And there will be an aggressive expansion of its international services.
Aside from outlining plans to re-enter South America and the US, it is also considering ramping up flights to Europe. Low-budget arm Jetstar is also considering launching services to Korea, Taiwan, and could be flying to Beirut, Athens, Manchester or even Milan as early as 2009.
That certainly will make a Macquarie return nigh on impossible. Even if it does, it would most likely be without Packer."
The little bit Dixon has yet to grasp is that many shareholders weren't seduced by his pushing APA. So a bit of a sharebuyback and a bit of a talk up are hardly likely to convince anyone other than himself he is the "man for the job"
This whole thing stinks, I just hope someone in the regulatory bureacracy has a look at this properly. They are not only tarnished they were in it up to their necks.
THE code name was Project Suzie. It was October 1998, and Qantas Airways was about to fall prey to a hostile private equity bid. Back then, they were called leveraged buyouts. Three months earlier, an ambitious 26-year-old investment banker nicknamed "Brains" around Macquarie Bank's Sydney office had put together a team to work up the deal to take Qantas out of the public's hands. A decision by a debt-averse Kerry Packer spared it at the last minute.
But for this, the national carrier would likely have found its way into the hands of the country's richest man, one of the world's leading private equity operators, Texas Pacific Group, and Macquarie, the aggressive home-grown investment bank.
The banker, Ben Brazil, had been hired straight from university and had been quickly adopted by one of the bank's heavy hitters, Nicholas Moore, as a protégé.
It was Brazil who had convinced Ashok Jacob, the head of the Packer family's key private company, Consolidated Press Holdings, to take it to Packer.
Packer senior liked it immediately.
In the several meetings to discuss the deal, the irascible Packer patriarch labelled airline pilots "glorified bus drivers" and relished the prospect of shaking up what he viewed as an industry that did not deserve the mystique afforded it.
Meanwhile, Brazil had also convinced David Bonderman's Texas Pacific Group to join the bidding consortium.
Five years earlier Texas Pacific had bought the bankrupt Continental Airlines.
It was the deal that would catapult Bonderman into the realms of the fabulously wealthy and drive his interest in airlines.
By the time he was finished with Continental, he would be $US600 million richer.
And by that stage, his Texas Pacific had bought 20 per cent of the little-known Irish carrier Ryanair, which went on to become Europe's largest low-cost airline.
So when the opportunity to grab a slice of Qantas presented itself, Bonderman jumped at the idea.
Project Suzie's third partner was Macquarie itself, which planned to take a minor stake in the bidding vehicle. It also stood to make fees as the deal's adviser.
The deal was kept so quiet within Macquarie that Qantas didn't even appear on the list of banned stocks that employees in the mergers and acquisitions team were forbidden to trade.
Even at that stage, Macquarie could see the wealth of opportunities. All it had to do was re-engineer the airline's balance sheet.
Qantas aircraft were undervalued. If the jet debt was transferred off the Qantas balance sheet and financed through an obscure process out of New York, there would be more money available to the shareholders - all three of them.
Everything was ready to go. Project Suzie was about to be launched. But two events took place that would kill it.
First, Kerry Packer began to get cold feet. Unlike the recent Airline Partners Australia consortium, the big fella could foresee problems in the country's richest man buying Qantas. It was never going to be easy to convince the public.
Then the Qantas share price began to climb. In July, the shares were trading at $2.40. But by October they had risen to $2.67, valuing the airline at $3.1 billion. By the end of the year, the stock had hit $3.40.
There were suspicions the plan had leaked out and that someone was trading on the information.
A vast number of options over Qantas shares changed hands in a single transaction.
The Macquarie hierarchy was apoplectic. The bank was already in the firing line after one of its gun executives had been charged with insider trading, accused of using his knowledge about the TNT takeover, on which Macquarie was advising, to trade options.
The identity of the Qantas buyer was never discovered.
Then, at the last minute, the physically ailing Packer had decided the airline industry was just too big a punt; a big call from someone who spent every spare minute in Las Vegas and London casinos.
The Asian economies had been in meltdown for a year and regional tourism was hardly at its sparkling best.
James Packer, too, wasn't overly convinced of the financial merits of a private equity bid for Qantas.
The deal may have fallen over but Brazil turned it into a personal win.
Through Project Suzie he had become close to the Packer organisation.
He later accepted an offer to jump to Consolidated Press Holdings, before heading back to Macquarie Bank where he now is employed in its London office.
According to directors at the time, not a whisper of Project Suzie reached the Qantas board.
Macquarie, in particular, was careful that it never did. It was then running an extremely profitable aircraft leasing business, which would have been damaged by news of any hostile bid drifting out to the Qantas board.
"I have no such recollection of any bid coming forward," said veteran director Jim Kennedy, who served on the Qantas board between 1995 and 2006.
"I'm sure Gary [Toomey, Qantas's finance director] would have told us at the time," he said.
It is understood Kerry Packer told senior Qantas executives only just before his death in 2005 that "people on his behalf" had looked at the airline.
It would take another eight years before a Packer was again involved in a deal to take Qantas out of public hands. This time he would occupy a different seat at the table.
WHEN James Packer's name was raised at the press conference to announce the Macquarie-led $11.1 billion friendly takeover for Qantas five months ago, no one realised the extent of his connections.
Chairman Margaret Jackson fielded a question about Packer's potential conflict of interest, given his large personal holding in Macquarie Bank and his seat on the Qantas board, and could barely disguise her disgust.
No one questions a Packer, let alone the integrity of a Packer.
Had Packer absented himself from the takeover discussions because he was the single biggest individual shareholder in Macquarie, the bank organising the $11.1 billion bid?
"I think that's absolutely an absurd suggestion … of course I did not ask James to remove himself from the decision-making process," Jackson fumed.
"I don't believe that James had any conflict of interest, and I find it offensive that you might even suggest that."
James Packer knew a lot more about the risks and possibilities of a private equity grab for Qantas and was in a better position to advise Qantas shareholders than most of the people watching the friendly bid unfold that day realised.
Indeed, Ben Brazil's nearly successful attempt to pull Kerry and James Packer across the line on a Qantas bid was not the first time Macquarie had lusted after the airline. And once again, Texas Pacific and David Bonderman were coming along for the ride. For Macquarie, it was turning into an obsession.
Several years earlier, the Herald has learned, Macquarie worked on an even earlier version of Project Suzie. Back then, in late 1996, a tilt at Qantas had been conceived by Nicholas Moore.
Moore believed Qantas "could be geared up to a greater level", says an insider. This deal never went beyond concept stage and certainly never reached the Qantas board, according to board sources. Moore declined to comment when contacted by the Herald.
While the Packer family's connections to Qantas were closer than the public realised, there were also strong links between the airline and Macquarie Bank.
In August 1995 Macquarie had come up with a debenture, called a Qanmac, which allowed foreigners to gain exposure to Qantas through an equity instrument, thereby overcoming the constraints of the Qantas Sale Act which blocks foreign investors from owning more than 50 per cent of the airline.
James Strong was then running Qantas.
Under Strong were two ambitious executives - finance director Gary Toomey and retail and marketing head Geoff Dixon. Both desperately wanted Strong's job when he retired.
"You were either in Toomey's camp or in Dixon's," says a Qantas insider.
"It was one or the other."
Sworn Toomey supporters included Peter Gregg, the aggressive accountant who was later to replace him when he went to run Ansett, Peter Lucas and a young Grant Fenn. All had plenty of contact with Macquarie and Lucas now works there.
So when Macquarie Bank approached Dixon and Gregg late last year, it had supporters on the inside.
Gregg was onside right from the beginning. And with the help of a $100 million-plus incentive, Macquarie convinced Dixon the deal was a goer.
It also believed it had support on the Qantas board. According to one board insider, James Packer thought the $5.45-a-share offer was "compelling" when the price was hammered out in December last year.
Packer and Dixon were also very close. Not only had Packer joined the board of Qantas board in 2004, in May last year, Dixon had reciprocated. He agreed to join the board of Publishing and Broadcasting when James Packer restructured the board and the company after the death of his father.
According to Qantas board sources, Packer was asked to join Qantas because of his sway in Canberra. And Margaret Jackson and Dixon relished the prospect of being able to take advantage of Packer's broader perspective, they say.
Insiders say he soon began giving his view in management strategy briefings to the board. He was sometimes at odds with Dixon on strategic matters.
However, since the private equity grab for Qantas failed, Packer made it plain to those around him that he wanted to quit Qantas.
Even six months earlier - around the time Airline Partners bid for Qantas became public - those close to Packer claim his busy work schedule with casino developments from Asia to Russia meant he was increasingly stretched to find time for Qantas.
The word began to leak out that Packer wanted off the board. Last week, Jackson's departure provided the catalyst.
Also, Packer believed that Margaret Jackson should not bear the brunt of the deal's failure on her own. "Personally, he felt it was a way to shelter Margaret," says one insider.
As Jackson defended Packer's integrity in brutal fashion at that December press conference, she was also a guardian for the Packer business interests in a broader sense.
The now 54-year-old Jackson was invited onto an advisory board of CPH soon after Kerry Packer died in December 2005.
She and her husband, former lawyer cum ski resort owner, Roger Donazzan, are also on the guest list for his wedding in France next month to Erica Baxter.
If James Packer's links to Qantas stretched further than anyone realised, his association with Macquarie was certainly out in the open.
Until February this year, he was Macquarie's largest individual shareholder. Indeed, the 15th biggest shareholder with 1 million shares, outdone only by the big investment institutions.
A search of the Macquarie Bank register this week, however, revealed that Packer sold his entire Macquarie stake in two tranches in January and February this year.
It was less than two months after the bid had been launched.
No one at Qantas management is ruling out another tilt from Macquarie Bank.
But given the sensitivities of a private equity buyout for the national icon, neither does anyone expect it to come until after this year's federal election.
Dixon acknowledged before investors on Thursday that Federal parliamentarians were in no mood to entertain any lobbying from the airline.
They are still incensed about revelations that APA planned to strip $4.5 billion out of the airline - an admission made only after getting approval by Federal Treasurer Peter Costello to proceed with the $11.1 billion bid.
Some MPs feel they were misled by the consortium.
"I don't think I'm silly enough to put my head up in Canberra between now and an election with either side of politics to talk about wanting to change the Qantas Sale Act given the activities of the past seven months," Dixon says.
Some politicians now refer to APA as the "Gordon Gecko consortium".
"I don't think there would be a good reaction in Canberra at the moment to such as move," Federal Liberal MP Bruce Baird says. "People are glad it's off the agenda."
Neither is Macquarie Bank expected to receive as friendly a reception next time around.
Despite being offered the chance to eventually own 5.5 per cent of the carrier under private equity ownership, Qantas senior management has indicated it would reject any future approaches.
Dixon is also making sure he leaves the cupboard bare for Macquarie the next time it runs the rule over the airline.
The Macquarie plan involved an elaborate asset strip of the airline. Not that it ever willingly admitted to it. Businesses would be sold off. And the balance sheet raided.
Now Qantas is planning to divide the spoils among its existing shareholders - something it said it couldn't do previously as a public company.
There will be a buyback worth an estimated $2 billion.
The frequent-flyer plan might be sold off. Freight services also might be on the block. And there will be an aggressive expansion of its international services.
Aside from outlining plans to re-enter South America and the US, it is also considering ramping up flights to Europe. Low-budget arm Jetstar is also considering launching services to Korea, Taiwan, and could be flying to Beirut, Athens, Manchester or even Milan as early as 2009.
That certainly will make a Macquarie return nigh on impossible. Even if it does, it would most likely be without Packer."
The little bit Dixon has yet to grasp is that many shareholders weren't seduced by his pushing APA. So a bit of a sharebuyback and a bit of a talk up are hardly likely to convince anyone other than himself he is the "man for the job"
This whole thing stinks, I just hope someone in the regulatory bureacracy has a look at this properly. They are not only tarnished they were in it up to their necks.
Last edited by QFinsider; 26th May 2007 at 06:01.
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But wait there is more...
SMH 26 May 2007
by Alan Kohler
"THE idea that Qantas chief executive Geoff Dixon has suddenly discovered all these excellent new ideas for running Qantas after talking to Macquarie bankers, Bob Mansfield, David Coe and the others behind Airline Partners Australia, which the company may be putting about, is, to say the least, unbelievable.
It was, of course, the other way around. Dixon's existing strategy became APA's - except, perhaps, for the new wheeze of borrowing some money and giving it to shareholders (claps hand on forehead - "Borrowing to replace equity - brilliant!").
Shareholders might like to ask Dixon and the rest of the board why they're only now putting on a happy face and spruiking an upbeat vision of Qantas's future, instead of all the glum warnings about business risks, and impending share price collapse, with which they have been trying to frighten shareholders into the arms of APA for the past five months.
Why not do it last year before the offer, to head it off? Why not publicly talk up the company's prospects after the bid was announced? And why not put this week's presentation in the target statement? Thank goodness, small shareholders will now be saying, Andrew Sisson of Balanced Equity and Paul Fiani of UBS had their own view of the company's prospects - now vindicated.
On Friday morning, after listening to Dixon's investor presentation on Thursday, Macquarie Equities aviation analyst Andrew Wilkinson upgraded his 12-month price target for Qantas to $7.05 - $1.60 more than the offer price.
So on the basis of its own analyst's numbers, Macquarie and its partners were trying to steal Qantas from its shareholders for $3.1 billion - 20 per cent - less than it is worth.
This shows several things: how clever they were to have seen that opportunity; how stupid they were to declare the bid "final" at the start (they could have easily got Qantas for $6 a share, which is still $2 billion less than the company is worth) and how mistaken the board was to support them and keep supporting them.
This week's presentation contained little that was new - but what was really new was the tone. As the headline on the Macquarie Bank research report said: "Glass finally half full."
Exactly. During the offer Dixon and the board were gloomy gutses, trying to justify their support for it and get shareholders to sell. Their sudden conversion to optimism now that the bid has failed does them no credit at all.
Macquarie's new $7.05 a share valuation on Qantas is simply based on a comparison of its valuation with two other airlines, Singapore Airlines and Cathay. They sell for 5.5 times enterprise value while Qantas is selling at 4.5 times EV.
Qantas has sold at more than 5.5 times EV in the past and, Wilkinson says, it probably will do so in future as airlines continue to be rerated.
The biggest threat to the company's value, apart from the unpredictable prospect of terrorism and oil shocks, is the entirely predictable entry of the Singapore Airlines-controlled Tiger Airways into the Australian market.
This week Melbourne Airport agreed to let Tiger use terminal four, which was Virgin Blue's first terminal in Melbourne before Ansett went broke and it was able to move into the deceased estate known as terminal three.
A Sydney Airport spokesman told me yesterday that it was talking to Tiger about Sydney's common user terminal - number 2 - which would be shared with Virgin Blue and Jetstar.
More important for Tiger is an air operator's certificate; the process for getting that is under way with the Civil Aviation Safety Authority. The regulator has made an estimate of the cost of the "job" (at $160 an hour), and Tiger is about to cough up a 50 per cent deposit, imposed to discourage fly-by-nighters. A CASA spokesman said
yesterday it should take three to six months to issue the certificate, including inspections of facilities, after which Tiger will be free to fly passengers around Australia.
So by September or October there will be an airline price war, possibly like nothing we have ever seen before.
Dixon jammed his flag in the ground on Thursday when he said Qantas would do whatever was necessary to defend 65 per cent total market share. At the moment, according to Dixon, Qantas has 51.9 per cent and Jetstar 15 per cent - a total of 66.9 per cent.
How much will this price war knock off Qantas's bottom line? Well, Tiger plans to launch in Australia with five planes, and hopes eventually to grow that to 30. The initial five will increase the capacity on the routes involved by 3 per cent.
Adding the planned growth by Qantas and Virgin Blue, that will lift total domestic capacity by 12 per cent, which compares with the long-term average growth of less than 5 per cent.
That should lead to lower yields and profits, especially if a new cut-price airline is trying to gain initial market share. But some believe (hope?) the extra capacity could produce weaker loads (more empty seats) instead.
But at this stage local institutions are buying Dixon's new upbeat story and, so far at least, are happily soaking up the stock that hedge funds are selling, which they had bought from the people they are now selling to.
Qantas's chairman, Margaret Jackson, thought the hedge funds would be squeezed by the locals as they crammed the exits, and would have to take losses of up as much as $1 a share. But she wasn't counting on the new, upbeat Geoff Dixon, and the fact that Qantas's prospects actually do look pretty good".
Alan Kohler publishes Eureka Report, an investment newsletter financially backed by Carnegie Wylie & Co, an adviser to Qantas. The views expressed here are Kohler's alone.
Thank goodness for Paul Fiani and Andrew Sisson
Time to have a good look ASIC et al
by Alan Kohler
"THE idea that Qantas chief executive Geoff Dixon has suddenly discovered all these excellent new ideas for running Qantas after talking to Macquarie bankers, Bob Mansfield, David Coe and the others behind Airline Partners Australia, which the company may be putting about, is, to say the least, unbelievable.
It was, of course, the other way around. Dixon's existing strategy became APA's - except, perhaps, for the new wheeze of borrowing some money and giving it to shareholders (claps hand on forehead - "Borrowing to replace equity - brilliant!").
Shareholders might like to ask Dixon and the rest of the board why they're only now putting on a happy face and spruiking an upbeat vision of Qantas's future, instead of all the glum warnings about business risks, and impending share price collapse, with which they have been trying to frighten shareholders into the arms of APA for the past five months.
Why not do it last year before the offer, to head it off? Why not publicly talk up the company's prospects after the bid was announced? And why not put this week's presentation in the target statement? Thank goodness, small shareholders will now be saying, Andrew Sisson of Balanced Equity and Paul Fiani of UBS had their own view of the company's prospects - now vindicated.
On Friday morning, after listening to Dixon's investor presentation on Thursday, Macquarie Equities aviation analyst Andrew Wilkinson upgraded his 12-month price target for Qantas to $7.05 - $1.60 more than the offer price.
So on the basis of its own analyst's numbers, Macquarie and its partners were trying to steal Qantas from its shareholders for $3.1 billion - 20 per cent - less than it is worth.
This shows several things: how clever they were to have seen that opportunity; how stupid they were to declare the bid "final" at the start (they could have easily got Qantas for $6 a share, which is still $2 billion less than the company is worth) and how mistaken the board was to support them and keep supporting them.
This week's presentation contained little that was new - but what was really new was the tone. As the headline on the Macquarie Bank research report said: "Glass finally half full."
Exactly. During the offer Dixon and the board were gloomy gutses, trying to justify their support for it and get shareholders to sell. Their sudden conversion to optimism now that the bid has failed does them no credit at all.
Macquarie's new $7.05 a share valuation on Qantas is simply based on a comparison of its valuation with two other airlines, Singapore Airlines and Cathay. They sell for 5.5 times enterprise value while Qantas is selling at 4.5 times EV.
Qantas has sold at more than 5.5 times EV in the past and, Wilkinson says, it probably will do so in future as airlines continue to be rerated.
The biggest threat to the company's value, apart from the unpredictable prospect of terrorism and oil shocks, is the entirely predictable entry of the Singapore Airlines-controlled Tiger Airways into the Australian market.
This week Melbourne Airport agreed to let Tiger use terminal four, which was Virgin Blue's first terminal in Melbourne before Ansett went broke and it was able to move into the deceased estate known as terminal three.
A Sydney Airport spokesman told me yesterday that it was talking to Tiger about Sydney's common user terminal - number 2 - which would be shared with Virgin Blue and Jetstar.
More important for Tiger is an air operator's certificate; the process for getting that is under way with the Civil Aviation Safety Authority. The regulator has made an estimate of the cost of the "job" (at $160 an hour), and Tiger is about to cough up a 50 per cent deposit, imposed to discourage fly-by-nighters. A CASA spokesman said
yesterday it should take three to six months to issue the certificate, including inspections of facilities, after which Tiger will be free to fly passengers around Australia.
So by September or October there will be an airline price war, possibly like nothing we have ever seen before.
Dixon jammed his flag in the ground on Thursday when he said Qantas would do whatever was necessary to defend 65 per cent total market share. At the moment, according to Dixon, Qantas has 51.9 per cent and Jetstar 15 per cent - a total of 66.9 per cent.
How much will this price war knock off Qantas's bottom line? Well, Tiger plans to launch in Australia with five planes, and hopes eventually to grow that to 30. The initial five will increase the capacity on the routes involved by 3 per cent.
Adding the planned growth by Qantas and Virgin Blue, that will lift total domestic capacity by 12 per cent, which compares with the long-term average growth of less than 5 per cent.
That should lead to lower yields and profits, especially if a new cut-price airline is trying to gain initial market share. But some believe (hope?) the extra capacity could produce weaker loads (more empty seats) instead.
But at this stage local institutions are buying Dixon's new upbeat story and, so far at least, are happily soaking up the stock that hedge funds are selling, which they had bought from the people they are now selling to.
Qantas's chairman, Margaret Jackson, thought the hedge funds would be squeezed by the locals as they crammed the exits, and would have to take losses of up as much as $1 a share. But she wasn't counting on the new, upbeat Geoff Dixon, and the fact that Qantas's prospects actually do look pretty good".
Alan Kohler publishes Eureka Report, an investment newsletter financially backed by Carnegie Wylie & Co, an adviser to Qantas. The views expressed here are Kohler's alone.
Thank goodness for Paul Fiani and Andrew Sisson
Time to have a good look ASIC et al
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Trust betrayed........
How can anyone in their right mind now trust Dixon and the board.
We have these people saying that Qantas is good value at $5.45 so sell up while you can, and then after the sale falls over, then tell us it's worth more than that and the future looks bright !!!
No apology for getting it wrong..... no mention of the fact that it was a bad call and that the ordinary shareholders would have been denied TRUE value if APA got it's grubby hands on all the shares in the buy-out. Instead, he stands up and attempts to pretend that it didn't happen. No remorse....... No apology...... no nothing.
If I make a mistake of any kind at home or work, I expect to be held to account. I expect to atone for the error in some way.
Dixon and co have not ,will not and will maintain that they did the right thing and do not expect to have to answer to anyone...... so long as the share price remains high (except Jackson, who would say in event of it going down say ...."I told you so...." )
Now the sale program starts.
First, the Frequent Flyer program, then Catering. (Engineering isn't worth anything so that'll be outsourced). Those asset sales will support the price war against Tiger Airways and also provide some creative accouting for the Annual Report. " look how well we're doing now...." they'll tout, and then embark on a program of AWA's structured to progressively pay less for more work and responsibility (for those that are left to hold the fort).
In the meantime, the board will vote themselves obscene amounts of so called "performance bonuses" and shares for doing such a "wonderful" job.
"Sustainable Future?" . I say ....... "Unsustainable business Practices"
We have these people saying that Qantas is good value at $5.45 so sell up while you can, and then after the sale falls over, then tell us it's worth more than that and the future looks bright !!!
No apology for getting it wrong..... no mention of the fact that it was a bad call and that the ordinary shareholders would have been denied TRUE value if APA got it's grubby hands on all the shares in the buy-out. Instead, he stands up and attempts to pretend that it didn't happen. No remorse....... No apology...... no nothing.
If I make a mistake of any kind at home or work, I expect to be held to account. I expect to atone for the error in some way.
Dixon and co have not ,will not and will maintain that they did the right thing and do not expect to have to answer to anyone...... so long as the share price remains high (except Jackson, who would say in event of it going down say ...."I told you so...." )
Now the sale program starts.
First, the Frequent Flyer program, then Catering. (Engineering isn't worth anything so that'll be outsourced). Those asset sales will support the price war against Tiger Airways and also provide some creative accouting for the Annual Report. " look how well we're doing now...." they'll tout, and then embark on a program of AWA's structured to progressively pay less for more work and responsibility (for those that are left to hold the fort).
In the meantime, the board will vote themselves obscene amounts of so called "performance bonuses" and shares for doing such a "wonderful" job.
"Sustainable Future?" . I say ....... "Unsustainable business Practices"
I can't believe there have not been more responses to this thread. Maybe the fact that it is quite long has discouraged readers. Guys - read this stuff. Mind blowing. Do we really want these sort of people in Australian business. What can we do about this sort of greed and thievery, corruption and amazing lying??
Rodney,
It's not so much the length of the posts but the fact that they are posted as one BIG paragraph that makes hard reading. I suspect many viewers of this post haven't bothered to read these long posts. If so thats a real shame.
One of the problems I have with this site is that when you go back and edit a post all paragraph formatting is lost and your original post ends up as one big paragraph. Prior to exiting your edit you have to go an reinsert all the paragraph breaks, it's a real PITA. These posts look like they may have been cut and pasted, perhaps the same happens in this instance too.
There is some very damning information in those posts and if the info is correct (I suspect it is) it does need much greater publicity.
QF insider, if you read this could you edit your posts and break them up into small paragraphs to make it easier to read.
27/09
It's not so much the length of the posts but the fact that they are posted as one BIG paragraph that makes hard reading. I suspect many viewers of this post haven't bothered to read these long posts. If so thats a real shame.
One of the problems I have with this site is that when you go back and edit a post all paragraph formatting is lost and your original post ends up as one big paragraph. Prior to exiting your edit you have to go an reinsert all the paragraph breaks, it's a real PITA. These posts look like they may have been cut and pasted, perhaps the same happens in this instance too.
There is some very damning information in those posts and if the info is correct (I suspect it is) it does need much greater publicity.
QF insider, if you read this could you edit your posts and break them up into small paragraphs to make it easier to read.
27/09
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reposted
THE code name was Project Suzie. It was October 1998, and Qantas Airways was about to fall prey to a hostile private equity bid. Back then, they were called leveraged buyouts. Three months earlier, an ambitious 26-year-old investment banker nicknamed "Brains" around Macquarie Bank's Sydney office had put together a team to work up the deal to take Qantas out of the public's hands. A decision by a debt-averse Kerry Packer spared it at the last minute.
But for this, the national carrier would likely have found its way into the hands of the country's richest man, one of the world's leading private equity operators, Texas Pacific Group, and Macquarie, the aggressive home-grown investment bank.
The banker, Ben Brazil, had been hired straight from university and had been quickly adopted by one of the bank's heavy hitters, Nicholas Moore, as a protégé.
It was Brazil who had convinced Ashok Jacob, the head of the Packer family's key private company, Consolidated Press Holdings, to take it to Packer.
Packer senior liked it immediately.
In the several meetings to discuss the deal, the irascible Packer patriarch labelled airline pilots "glorified bus drivers" and relished the prospect of shaking up what he viewed as an industry that did not deserve the mystique afforded it.
Meanwhile, Brazil had also convinced David Bonderman's Texas Pacific Group to join the bidding consortium.
Five years earlier Texas Pacific had bought the bankrupt Continental Airlines.
It was the deal that would catapult Bonderman into the realms of the fabulously wealthy and drive his interest in airlines.
By the time he was finished with Continental, he would be $US600 million richer.
And by that stage, his Texas Pacific had bought 20 per cent of the little-known Irish carrier Ryanair, which went on to become Europe's largest low-cost airline.
So when the opportunity to grab a slice of Qantas presented itself, Bonderman jumped at the idea.
Project Suzie's third partner was Macquarie itself, which planned to take a minor stake in the bidding vehicle. It also stood to make fees as the deal's adviser.
The deal was kept so quiet within Macquarie that Qantas didn't even appear on the list of banned stocks that employees in the mergers and acquisitions team were forbidden to trade.
Even at that stage, Macquarie could see the wealth of opportunities. All it had to do was re-engineer the airline's balance sheet.
Qantas aircraft were undervalued. If the jet debt was transferred off the Qantas balance sheet and financed through an obscure process out of New York, there would be more money available to the shareholders - all three of them.
Everything was ready to go. Project Suzie was about to be launched. But two events took place that would kill it.
First, Kerry Packer began to get cold feet. Unlike the recent Airline Partners Australia consortium, the big fella could foresee problems in the country's richest man buying Qantas. It was never going to be easy to convince the public.
Then the Qantas share price began to climb. In July, the shares were trading at $2.40. But by October they had risen to $2.67, valuing the airline at $3.1 billion. By the end of the year, the stock had hit $3.40.
There were suspicions the plan had leaked out and that someone was trading on the information.
A vast number of options over Qantas shares changed hands in a single transaction.
The Macquarie hierarchy was apoplectic. The bank was already in the firing line after one of its gun executives had been charged with insider trading, accused of using his knowledge about the TNT takeover, on which Macquarie was advising, to trade options.
The identity of the Qantas buyer was never discovered.
Then, at the last minute, the physically ailing Packer had decided the airline industry was just too big a punt; a big call from someone who spent every spare minute in Las Vegas and London casinos.
The Asian economies had been in meltdown for a year and regional tourism was hardly at its sparkling best.
James Packer, too, wasn't overly convinced of the financial merits of a private equity bid for Qantas.
The deal may have fallen over but Brazil turned it into a personal win.
Through Project Suzie he had become close to the Packer organisation.
He later accepted an offer to jump to Consolidated Press Holdings, before heading back to Macquarie Bank where he now is employed in its London office.
According to directors at the time, not a whisper of Project Suzie reached the Qantas board.
Macquarie, in particular, was careful that it never did. It was then running an extremely profitable aircraft leasing business, which would have been damaged by news of any hostile bid drifting out to the Qantas board.
"I have no such recollection of any bid coming forward," said veteran director Jim Kennedy, who served on the Qantas board between 1995 and 2006.
"I'm sure Gary [Toomey, Qantas's finance director] would have told us at the time," he said.
It is understood Kerry Packer told senior Qantas executives only just before his death in 2005 that "people on his behalf" had looked at the airline.
It would take another eight years before a Packer was again involved in a deal to take Qantas out of public hands. This time he would occupy a different seat at the table.
WHEN James Packer's name was raised at the press conference to announce the Macquarie-led $11.1 billion friendly takeover for Qantas five months ago, no one realised the extent of his connections.
Chairman Margaret Jackson fielded a question about Packer's potential conflict of interest, given his large personal holding in Macquarie Bank and his seat on the Qantas board, and could barely disguise her disgust.
No one questions a Packer, let alone the integrity of a Packer.
Had Packer absented himself from the takeover discussions because he was the single biggest individual shareholder in Macquarie, the bank organising the $11.1 billion bid?
"I think that's absolutely an absurd suggestion … of course I did not ask James to remove himself from the decision-making process," Jackson fumed.
"I don't believe that James had any conflict of interest, and I find it offensive that you might even suggest that."
James Packer knew a lot more about the risks and possibilities of a private equity grab for Qantas and was in a better position to advise Qantas shareholders than most of the people watching the friendly bid unfold that day realised.
Indeed, Ben Brazil's nearly successful attempt to pull Kerry and James Packer across the line on a Qantas bid was not the first time Macquarie had lusted after the airline. And once again, Texas Pacific and David Bonderman were coming along for the ride. For Macquarie, it was turning into an obsession.
Several years earlier, the Herald has learned, Macquarie worked on an even earlier version of Project Suzie. Back then, in late 1996, a tilt at Qantas had been conceived by Nicholas Moore.
Moore believed Qantas "could be geared up to a greater level", says an insider. This deal never went beyond concept stage and certainly never reached the Qantas board, according to board sources. Moore declined to comment when contacted by the Herald.
While the Packer family's connections to Qantas were closer than the public realised, there were also strong links between the airline and Macquarie Bank.
In August 1995 Macquarie had come up with a debenture, called a Qanmac, which allowed foreigners to gain exposure to Qantas through an equity instrument, thereby overcoming the constraints of the Qantas Sale Act which blocks foreign investors from owning more than 50 per cent of the airline.
James Strong was then running Qantas.
Under Strong were two ambitious executives - finance director Gary Toomey and retail and marketing head Geoff Dixon. Both desperately wanted Strong's job when he retired.
"You were either in Toomey's camp or in Dixon's," says a Qantas insider.
"It was one or the other."
Sworn Toomey supporters included Peter Gregg, the aggressive accountant who was later to replace him when he went to run Ansett, Peter Lucas and a young Grant Fenn. All had plenty of contact with Macquarie and Lucas now works there.
So when Macquarie Bank approached Dixon and Gregg late last year, it had supporters on the inside.
Gregg was onside right from the beginning. And with the help of a $100 million-plus incentive, Macquarie convinced Dixon the deal was a goer.
It also believed it had support on the Qantas board. According to one board insider, James Packer thought the $5.45-a-share offer was "compelling" when the price was hammered out in December last year.
Packer and Dixon were also very close. Not only had Packer joined the board of Qantas board in 2004, in May last year, Dixon had reciprocated. He agreed to join the board of Publishing and Broadcasting when James Packer restructured the board and the company after the death of his father.
According to Qantas board sources, Packer was asked to join Qantas because of his sway in Canberra. And Margaret Jackson and Dixon relished the prospect of being able to take advantage of Packer's broader perspective, they say.
Insiders say he soon began giving his view in management strategy briefings to the board. He was sometimes at odds with Dixon on strategic matters.
However, since the private equity grab for Qantas failed, Packer made it plain to those around him that he wanted to quit Qantas.
Even six months earlier - around the time Airline Partners bid for Qantas became public - those close to Packer claim his busy work schedule with casino developments from Asia to Russia meant he was increasingly stretched to find time for Qantas.
The word began to leak out that Packer wanted off the board. Last week, Jackson's departure provided the catalyst.
Also, Packer believed that Margaret Jackson should not bear the brunt of the deal's failure on her own. "Personally, he felt it was a way to shelter Margaret," says one insider.
As Jackson defended Packer's integrity in brutal fashion at that December press conference, she was also a guardian for the Packer business interests in a broader sense.
The now 54-year-old Jackson was invited onto an advisory board of CPH soon after Kerry Packer died in December 2005.
She and her husband, former lawyer cum ski resort owner, Roger Donazzan, are also on the guest list for his wedding in France next month to Erica Baxter.
If James Packer's links to Qantas stretched further than anyone realised, his association with Macquarie was certainly out in the open.
Until February this year, he was Macquarie's largest individual shareholder. Indeed, the 15th biggest shareholder with 1 million shares, outdone only by the big investment institutions.
A search of the Macquarie Bank register this week, however, revealed that Packer sold his entire Macquarie stake in two tranches in January and February this year.
It was less than two months after the bid had been launched.
No one at Qantas management is ruling out another tilt from Macquarie Bank.
But given the sensitivities of a private equity buyout for the national icon, neither does anyone expect it to come until after this year's federal election.
Dixon acknowledged before investors on Thursday that Federal parliamentarians were in no mood to entertain any lobbying from the airline.
They are still incensed about revelations that APA planned to strip $4.5 billion out of the airline - an admission made only after getting approval by Federal Treasurer Peter Costello to proceed with the $11.1 billion bid.
Some MPs feel they were misled by the consortium.
"I don't think I'm silly enough to put my head up in Canberra between now and an election with either side of politics to talk about wanting to change the Qantas Sale Act given the activities of the past seven months," Dixon says.
Some politicians now refer to APA as the "Gordon Gecko consortium".
"I don't think there would be a good reaction in Canberra at the moment to such as move," Federal Liberal MP Bruce Baird says. "People are glad it's off the agenda."
Neither is Macquarie Bank expected to receive as friendly a reception next time around.
Despite being offered the chance to eventually own 5.5 per cent of the carrier under private equity ownership, Qantas senior management has indicated it would reject any future approaches.
Dixon is also making sure he leaves the cupboard bare for Macquarie the next time it runs the rule over the airline.
The Macquarie plan involved an elaborate asset strip of the airline. Not that it ever willingly admitted to it. Businesses would be sold off. And the balance sheet raided.
Now Qantas is planning to divide the spoils among its existing shareholders - something it said it couldn't do previously as a public company.
There will be a buyback worth an estimated $2 billion.
The frequent-flyer plan might be sold off. Freight services also might be on the block. And there will be an aggressive expansion of its international services.
Aside from outlining plans to re-enter South America and the US, it is also considering ramping up flights to Europe. Low-budget arm Jetstar is also considering launching services to Korea, Taiwan, and could be flying to Beirut, Athens, Manchester or even Milan as early as 2009.
That certainly will make a Macquarie return nigh on impossible. Even if it does, it would most likely be without Packer.
Sorry guys my posting skills are a little basic!
But for this, the national carrier would likely have found its way into the hands of the country's richest man, one of the world's leading private equity operators, Texas Pacific Group, and Macquarie, the aggressive home-grown investment bank.
The banker, Ben Brazil, had been hired straight from university and had been quickly adopted by one of the bank's heavy hitters, Nicholas Moore, as a protégé.
It was Brazil who had convinced Ashok Jacob, the head of the Packer family's key private company, Consolidated Press Holdings, to take it to Packer.
Packer senior liked it immediately.
In the several meetings to discuss the deal, the irascible Packer patriarch labelled airline pilots "glorified bus drivers" and relished the prospect of shaking up what he viewed as an industry that did not deserve the mystique afforded it.
Meanwhile, Brazil had also convinced David Bonderman's Texas Pacific Group to join the bidding consortium.
Five years earlier Texas Pacific had bought the bankrupt Continental Airlines.
It was the deal that would catapult Bonderman into the realms of the fabulously wealthy and drive his interest in airlines.
By the time he was finished with Continental, he would be $US600 million richer.
And by that stage, his Texas Pacific had bought 20 per cent of the little-known Irish carrier Ryanair, which went on to become Europe's largest low-cost airline.
So when the opportunity to grab a slice of Qantas presented itself, Bonderman jumped at the idea.
Project Suzie's third partner was Macquarie itself, which planned to take a minor stake in the bidding vehicle. It also stood to make fees as the deal's adviser.
The deal was kept so quiet within Macquarie that Qantas didn't even appear on the list of banned stocks that employees in the mergers and acquisitions team were forbidden to trade.
Even at that stage, Macquarie could see the wealth of opportunities. All it had to do was re-engineer the airline's balance sheet.
Qantas aircraft were undervalued. If the jet debt was transferred off the Qantas balance sheet and financed through an obscure process out of New York, there would be more money available to the shareholders - all three of them.
Everything was ready to go. Project Suzie was about to be launched. But two events took place that would kill it.
First, Kerry Packer began to get cold feet. Unlike the recent Airline Partners Australia consortium, the big fella could foresee problems in the country's richest man buying Qantas. It was never going to be easy to convince the public.
Then the Qantas share price began to climb. In July, the shares were trading at $2.40. But by October they had risen to $2.67, valuing the airline at $3.1 billion. By the end of the year, the stock had hit $3.40.
There were suspicions the plan had leaked out and that someone was trading on the information.
A vast number of options over Qantas shares changed hands in a single transaction.
The Macquarie hierarchy was apoplectic. The bank was already in the firing line after one of its gun executives had been charged with insider trading, accused of using his knowledge about the TNT takeover, on which Macquarie was advising, to trade options.
The identity of the Qantas buyer was never discovered.
Then, at the last minute, the physically ailing Packer had decided the airline industry was just too big a punt; a big call from someone who spent every spare minute in Las Vegas and London casinos.
The Asian economies had been in meltdown for a year and regional tourism was hardly at its sparkling best.
James Packer, too, wasn't overly convinced of the financial merits of a private equity bid for Qantas.
The deal may have fallen over but Brazil turned it into a personal win.
Through Project Suzie he had become close to the Packer organisation.
He later accepted an offer to jump to Consolidated Press Holdings, before heading back to Macquarie Bank where he now is employed in its London office.
According to directors at the time, not a whisper of Project Suzie reached the Qantas board.
Macquarie, in particular, was careful that it never did. It was then running an extremely profitable aircraft leasing business, which would have been damaged by news of any hostile bid drifting out to the Qantas board.
"I have no such recollection of any bid coming forward," said veteran director Jim Kennedy, who served on the Qantas board between 1995 and 2006.
"I'm sure Gary [Toomey, Qantas's finance director] would have told us at the time," he said.
It is understood Kerry Packer told senior Qantas executives only just before his death in 2005 that "people on his behalf" had looked at the airline.
It would take another eight years before a Packer was again involved in a deal to take Qantas out of public hands. This time he would occupy a different seat at the table.
WHEN James Packer's name was raised at the press conference to announce the Macquarie-led $11.1 billion friendly takeover for Qantas five months ago, no one realised the extent of his connections.
Chairman Margaret Jackson fielded a question about Packer's potential conflict of interest, given his large personal holding in Macquarie Bank and his seat on the Qantas board, and could barely disguise her disgust.
No one questions a Packer, let alone the integrity of a Packer.
Had Packer absented himself from the takeover discussions because he was the single biggest individual shareholder in Macquarie, the bank organising the $11.1 billion bid?
"I think that's absolutely an absurd suggestion … of course I did not ask James to remove himself from the decision-making process," Jackson fumed.
"I don't believe that James had any conflict of interest, and I find it offensive that you might even suggest that."
James Packer knew a lot more about the risks and possibilities of a private equity grab for Qantas and was in a better position to advise Qantas shareholders than most of the people watching the friendly bid unfold that day realised.
Indeed, Ben Brazil's nearly successful attempt to pull Kerry and James Packer across the line on a Qantas bid was not the first time Macquarie had lusted after the airline. And once again, Texas Pacific and David Bonderman were coming along for the ride. For Macquarie, it was turning into an obsession.
Several years earlier, the Herald has learned, Macquarie worked on an even earlier version of Project Suzie. Back then, in late 1996, a tilt at Qantas had been conceived by Nicholas Moore.
Moore believed Qantas "could be geared up to a greater level", says an insider. This deal never went beyond concept stage and certainly never reached the Qantas board, according to board sources. Moore declined to comment when contacted by the Herald.
While the Packer family's connections to Qantas were closer than the public realised, there were also strong links between the airline and Macquarie Bank.
In August 1995 Macquarie had come up with a debenture, called a Qanmac, which allowed foreigners to gain exposure to Qantas through an equity instrument, thereby overcoming the constraints of the Qantas Sale Act which blocks foreign investors from owning more than 50 per cent of the airline.
James Strong was then running Qantas.
Under Strong were two ambitious executives - finance director Gary Toomey and retail and marketing head Geoff Dixon. Both desperately wanted Strong's job when he retired.
"You were either in Toomey's camp or in Dixon's," says a Qantas insider.
"It was one or the other."
Sworn Toomey supporters included Peter Gregg, the aggressive accountant who was later to replace him when he went to run Ansett, Peter Lucas and a young Grant Fenn. All had plenty of contact with Macquarie and Lucas now works there.
So when Macquarie Bank approached Dixon and Gregg late last year, it had supporters on the inside.
Gregg was onside right from the beginning. And with the help of a $100 million-plus incentive, Macquarie convinced Dixon the deal was a goer.
It also believed it had support on the Qantas board. According to one board insider, James Packer thought the $5.45-a-share offer was "compelling" when the price was hammered out in December last year.
Packer and Dixon were also very close. Not only had Packer joined the board of Qantas board in 2004, in May last year, Dixon had reciprocated. He agreed to join the board of Publishing and Broadcasting when James Packer restructured the board and the company after the death of his father.
According to Qantas board sources, Packer was asked to join Qantas because of his sway in Canberra. And Margaret Jackson and Dixon relished the prospect of being able to take advantage of Packer's broader perspective, they say.
Insiders say he soon began giving his view in management strategy briefings to the board. He was sometimes at odds with Dixon on strategic matters.
However, since the private equity grab for Qantas failed, Packer made it plain to those around him that he wanted to quit Qantas.
Even six months earlier - around the time Airline Partners bid for Qantas became public - those close to Packer claim his busy work schedule with casino developments from Asia to Russia meant he was increasingly stretched to find time for Qantas.
The word began to leak out that Packer wanted off the board. Last week, Jackson's departure provided the catalyst.
Also, Packer believed that Margaret Jackson should not bear the brunt of the deal's failure on her own. "Personally, he felt it was a way to shelter Margaret," says one insider.
As Jackson defended Packer's integrity in brutal fashion at that December press conference, she was also a guardian for the Packer business interests in a broader sense.
The now 54-year-old Jackson was invited onto an advisory board of CPH soon after Kerry Packer died in December 2005.
She and her husband, former lawyer cum ski resort owner, Roger Donazzan, are also on the guest list for his wedding in France next month to Erica Baxter.
If James Packer's links to Qantas stretched further than anyone realised, his association with Macquarie was certainly out in the open.
Until February this year, he was Macquarie's largest individual shareholder. Indeed, the 15th biggest shareholder with 1 million shares, outdone only by the big investment institutions.
A search of the Macquarie Bank register this week, however, revealed that Packer sold his entire Macquarie stake in two tranches in January and February this year.
It was less than two months after the bid had been launched.
No one at Qantas management is ruling out another tilt from Macquarie Bank.
But given the sensitivities of a private equity buyout for the national icon, neither does anyone expect it to come until after this year's federal election.
Dixon acknowledged before investors on Thursday that Federal parliamentarians were in no mood to entertain any lobbying from the airline.
They are still incensed about revelations that APA planned to strip $4.5 billion out of the airline - an admission made only after getting approval by Federal Treasurer Peter Costello to proceed with the $11.1 billion bid.
Some MPs feel they were misled by the consortium.
"I don't think I'm silly enough to put my head up in Canberra between now and an election with either side of politics to talk about wanting to change the Qantas Sale Act given the activities of the past seven months," Dixon says.
Some politicians now refer to APA as the "Gordon Gecko consortium".
"I don't think there would be a good reaction in Canberra at the moment to such as move," Federal Liberal MP Bruce Baird says. "People are glad it's off the agenda."
Neither is Macquarie Bank expected to receive as friendly a reception next time around.
Despite being offered the chance to eventually own 5.5 per cent of the carrier under private equity ownership, Qantas senior management has indicated it would reject any future approaches.
Dixon is also making sure he leaves the cupboard bare for Macquarie the next time it runs the rule over the airline.
The Macquarie plan involved an elaborate asset strip of the airline. Not that it ever willingly admitted to it. Businesses would be sold off. And the balance sheet raided.
Now Qantas is planning to divide the spoils among its existing shareholders - something it said it couldn't do previously as a public company.
There will be a buyback worth an estimated $2 billion.
The frequent-flyer plan might be sold off. Freight services also might be on the block. And there will be an aggressive expansion of its international services.
Aside from outlining plans to re-enter South America and the US, it is also considering ramping up flights to Europe. Low-budget arm Jetstar is also considering launching services to Korea, Taiwan, and could be flying to Beirut, Athens, Manchester or even Milan as early as 2009.
That certainly will make a Macquarie return nigh on impossible. Even if it does, it would most likely be without Packer.
Sorry guys my posting skills are a little basic!
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and here is the other one...
Please have a read of it
THE idea that Qantas chief executive Geoff Dixon has suddenly discovered all these excellent new ideas for running Qantas after talking to Macquarie bankers, Bob Mansfield, David Coe and the others behind Airline Partners Australia, which the company may be putting about, is, to say the least, unbelievable.
It was, of course, the other way around. Dixon's existing strategy became APA's - except, perhaps, for the new wheeze of borrowing some money and giving it to shareholders (claps hand on forehead - "Borrowing to replace equity - brilliant!").
Shareholders might like to ask Dixon and the rest of the board why they're only now putting on a happy face and spruiking an upbeat vision of Qantas's future, instead of all the glum warnings about business risks, and impending share price collapse, with which they have been trying to frighten shareholders into the arms of APA for the past five months.
Why not do it last year before the offer, to head it off? Why not publicly talk up the company's prospects after the bid was announced? And why not put this week's presentation in the target statement? Thank goodness, small shareholders will now be saying, Andrew Sisson of Balanced Equity and Paul Fiani of UBS had their own view of the company's prospects - now vindicated.
On Friday morning, after listening to Dixon's investor presentation on Thursday, Macquarie Equities aviation analyst Andrew Wilkinson upgraded his 12-month price target for Qantas to $7.05 - $1.60 more than the offer price.
So on the basis of its own analyst's numbers, Macquarie and its partners were trying to steal Qantas from its shareholders for $3.1 billion - 20 per cent - less than it is worth.
This shows several things: how clever they were to have seen that opportunity; how stupid they were to declare the bid "final" at the start (they could have easily got Qantas for $6 a share, which is still $2 billion less than the company is worth) and how mistaken the board was to support them and keep supporting them.
This week's presentation contained little that was new - but what was really new was the tone. As the headline on the Macquarie Bank research report said: "Glass finally half full."
Exactly. During the offer Dixon and the board were gloomy gutses, trying to justify their support for it and get shareholders to sell. Their sudden conversion to optimism now that the bid has failed does them no credit at all.
Macquarie's new $7.05 a share valuation on Qantas is simply based on a comparison of its valuation with two other airlines, Singapore Airlines and Cathay. They sell for 5.5 times enterprise value while Qantas is selling at 4.5 times EV.
Qantas has sold at more than 5.5 times EV in the past and, Wilkinson says, it probably will do so in future as airlines continue to be rerated.
The biggest threat to the company's value, apart from the unpredictable prospect of terrorism and oil shocks, is the entirely predictable entry of the Singapore Airlines-controlled Tiger Airways into the Australian market.
This week Melbourne Airport agreed to let Tiger use terminal four, which was Virgin Blue's first terminal in Melbourne before Ansett went broke and it was able to move into the deceased estate known as terminal three.
A Sydney Airport spokesman told me yesterday that it was talking to Tiger about Sydney's common user terminal - number 2 - which would be shared with Virgin Blue and Jetstar.
More important for Tiger is an air operator's certificate; the process for getting that is under way with the Civil Aviation Safety Authority. The regulator has made an estimate of the cost of the "job" (at $160 an hour), and Tiger is about to cough up a 50 per cent deposit, imposed to discourage fly-by-nighters. A CASA spokesman said
yesterday it should take three to six months to issue the certificate, including inspections of facilities, after which Tiger will be free to fly passengers around Australia.
So by September or October there will be an airline price war, possibly like nothing we have ever seen before.
Dixon jammed his flag in the ground on Thursday when he said Qantas would do whatever was necessary to defend 65 per cent total market share. At the moment, according to Dixon, Qantas has 51.9 per cent and Jetstar 15 per cent - a total of 66.9 per cent.
How much will this price war knock off Qantas's bottom line? Well, Tiger plans to launch in Australia with five planes, and hopes eventually to grow that to 30. The initial five will increase the capacity on the routes involved by 3 per cent. Adding the planned growth by Qantas and Virgin Blue, that will lift total domestic capacity by 12 per cent, which compares with the long-term average growth of less than 5 per cent.
That should lead to lower yields and profits, especially if a new cut-price airline is trying to gain initial market share. But some believe (hope?) the extra capacity could produce weaker loads (more empty seats) instead.
But at this stage local institutions are buying Dixon's new upbeat story and, so far at least, are happily soaking up the stock that hedge funds are selling, which they had bought from the people they are now selling to.
Qantas's chairman, Margaret Jackson, thought the hedge funds would be squeezed by the locals as they crammed the exits, and would have to take losses of up as much as $1 a share. But she wasn't counting on the new, upbeat Geoff Dixon, and the fact that Qantas's prospects actually do look pretty good.
Alan Kohler publishes Eureka Report, an investment newsletter financially backed by Carnegie Wylie & Co, an adviser to Qantas. The views expressed here are Kohler's alone.
Please have a read of it
THE idea that Qantas chief executive Geoff Dixon has suddenly discovered all these excellent new ideas for running Qantas after talking to Macquarie bankers, Bob Mansfield, David Coe and the others behind Airline Partners Australia, which the company may be putting about, is, to say the least, unbelievable.
It was, of course, the other way around. Dixon's existing strategy became APA's - except, perhaps, for the new wheeze of borrowing some money and giving it to shareholders (claps hand on forehead - "Borrowing to replace equity - brilliant!").
Shareholders might like to ask Dixon and the rest of the board why they're only now putting on a happy face and spruiking an upbeat vision of Qantas's future, instead of all the glum warnings about business risks, and impending share price collapse, with which they have been trying to frighten shareholders into the arms of APA for the past five months.
Why not do it last year before the offer, to head it off? Why not publicly talk up the company's prospects after the bid was announced? And why not put this week's presentation in the target statement? Thank goodness, small shareholders will now be saying, Andrew Sisson of Balanced Equity and Paul Fiani of UBS had their own view of the company's prospects - now vindicated.
On Friday morning, after listening to Dixon's investor presentation on Thursday, Macquarie Equities aviation analyst Andrew Wilkinson upgraded his 12-month price target for Qantas to $7.05 - $1.60 more than the offer price.
So on the basis of its own analyst's numbers, Macquarie and its partners were trying to steal Qantas from its shareholders for $3.1 billion - 20 per cent - less than it is worth.
This shows several things: how clever they were to have seen that opportunity; how stupid they were to declare the bid "final" at the start (they could have easily got Qantas for $6 a share, which is still $2 billion less than the company is worth) and how mistaken the board was to support them and keep supporting them.
This week's presentation contained little that was new - but what was really new was the tone. As the headline on the Macquarie Bank research report said: "Glass finally half full."
Exactly. During the offer Dixon and the board were gloomy gutses, trying to justify their support for it and get shareholders to sell. Their sudden conversion to optimism now that the bid has failed does them no credit at all.
Macquarie's new $7.05 a share valuation on Qantas is simply based on a comparison of its valuation with two other airlines, Singapore Airlines and Cathay. They sell for 5.5 times enterprise value while Qantas is selling at 4.5 times EV.
Qantas has sold at more than 5.5 times EV in the past and, Wilkinson says, it probably will do so in future as airlines continue to be rerated.
The biggest threat to the company's value, apart from the unpredictable prospect of terrorism and oil shocks, is the entirely predictable entry of the Singapore Airlines-controlled Tiger Airways into the Australian market.
This week Melbourne Airport agreed to let Tiger use terminal four, which was Virgin Blue's first terminal in Melbourne before Ansett went broke and it was able to move into the deceased estate known as terminal three.
A Sydney Airport spokesman told me yesterday that it was talking to Tiger about Sydney's common user terminal - number 2 - which would be shared with Virgin Blue and Jetstar.
More important for Tiger is an air operator's certificate; the process for getting that is under way with the Civil Aviation Safety Authority. The regulator has made an estimate of the cost of the "job" (at $160 an hour), and Tiger is about to cough up a 50 per cent deposit, imposed to discourage fly-by-nighters. A CASA spokesman said
yesterday it should take three to six months to issue the certificate, including inspections of facilities, after which Tiger will be free to fly passengers around Australia.
So by September or October there will be an airline price war, possibly like nothing we have ever seen before.
Dixon jammed his flag in the ground on Thursday when he said Qantas would do whatever was necessary to defend 65 per cent total market share. At the moment, according to Dixon, Qantas has 51.9 per cent and Jetstar 15 per cent - a total of 66.9 per cent.
How much will this price war knock off Qantas's bottom line? Well, Tiger plans to launch in Australia with five planes, and hopes eventually to grow that to 30. The initial five will increase the capacity on the routes involved by 3 per cent. Adding the planned growth by Qantas and Virgin Blue, that will lift total domestic capacity by 12 per cent, which compares with the long-term average growth of less than 5 per cent.
That should lead to lower yields and profits, especially if a new cut-price airline is trying to gain initial market share. But some believe (hope?) the extra capacity could produce weaker loads (more empty seats) instead.
But at this stage local institutions are buying Dixon's new upbeat story and, so far at least, are happily soaking up the stock that hedge funds are selling, which they had bought from the people they are now selling to.
Qantas's chairman, Margaret Jackson, thought the hedge funds would be squeezed by the locals as they crammed the exits, and would have to take losses of up as much as $1 a share. But she wasn't counting on the new, upbeat Geoff Dixon, and the fact that Qantas's prospects actually do look pretty good.
Alan Kohler publishes Eureka Report, an investment newsletter financially backed by Carnegie Wylie & Co, an adviser to Qantas. The views expressed here are Kohler's alone.
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This shows several things: how clever they were to have seen that opportunity; how stupid they were to declare the bid "final" at the start (they could have easily got Qantas for $6 a share, which is still $2 billion less than the company is worth) and how mistaken the board was to support them and keep supporting them
Indeed they were aware of significant arbitrage in the bid price and the 3 month forecast, something which the UBS Team had highlighted. This did not stop the pitt -street- kiribilli gang from having their scapegoat, Fiani resigned a few days ago, which is odd considering he was correct.
The one aspect of this whole fiasco is that the board did not appear to have the shareholders best interests at heart.
The board should have known the true worth of the company as per what GD is now declaring and recommended against the deal! Balanced Equity and UBS knew this and from limited information. The board should have subsequently advised shareholders to reject the offer as $5.45 was simply not enough.
What GD has recently declared is not new and that information should have been known to the board at the time of the offer.
Either the board was negligent or incompetent!
The board should have known the true worth of the company as per what GD is now declaring and recommended against the deal! Balanced Equity and UBS knew this and from limited information. The board should have subsequently advised shareholders to reject the offer as $5.45 was simply not enough.
What GD has recently declared is not new and that information should have been known to the board at the time of the offer.
Either the board was negligent or incompetent!
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Happy to be corrected but didn't Mr Packer ( J., esq.) recently resign from the board of QF??
A well connected (could there be better connected??) businessman does NOT resign from a board unless s**t has flown or they have a very fair expectation that s**t WILL fly!
One does wonder and time will tell.
A well connected (could there be better connected??) businessman does NOT resign from a board unless s**t has flown or they have a very fair expectation that s**t WILL fly!
One does wonder and time will tell.
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Wingspar,
Indeed.
Either they knew, or should have known, the true value.
Tropicalchief,
I don't think they always were - John Menadue seemed to have his head screwed on and I think Ritchie was above-board, no?
Just the current bunch (and their 1 Martin Place mates).
Speaking of ASIC looking at trading in QF shares, didn't ASIC go after Rene Rivkin for a rather smaller amount? If so, when will they go after this little cabal?
Indeed.
Either they knew, or should have known, the true value.
Tropicalchief,
I don't think they always were - John Menadue seemed to have his head screwed on and I think Ritchie was above-board, no?
Just the current bunch (and their 1 Martin Place mates).
Speaking of ASIC looking at trading in QF shares, didn't ASIC go after Rene Rivkin for a rather smaller amount? If so, when will they go after this little cabal?
Last edited by Taildragger67; 30th May 2007 at 15:51.