KEY POINTS:
Who'd believe the world's largest airline takeover would strike an Al Gore moment (in reverse)?
On Friday night, Qantas chairman Margaret Jackson was headed for the corporate knackers yard after the $12.6 billion bid for the Flying Kangaroo her board strongly endorsed failed to get enough shareholder acceptances to clear the first hurdle.
At 10.30pm Friday (NZ time) Airline Partners Australia (APA) announced the consortium had just 46 per cent of the required 50 per cent by the 7pm closing time.
Two of the big global hedge funds, which have made megabucks from arbitraging Qantas shares, had held out against the consortium.
Shareholders lined up for a bloodbath with the Qantas share price forecast to tumble below $A5 on Monday, and hedge funds, which had scooped up 45 per cent of the stock, raced for the exit door. A bloodbath may have forced a collapse in the share prices of other airlines, such as Air New Zealand, which have been pumped up since the private equity boys acquired a taste for airline stocks.
The $A5.45 a share offer is a mere 33 per cent premium on the price Qantas shares were trading before the bid was announced and up 60 per cent on the six month average prior to that. The multiple is merely some 12 times earnings.
In the same period Air New Zealand's share price has nearly doubled from $1.47 to $2.84 some of which can be put down to the remarkable profit recovery it posted earlier this year. Air New Zealand's market capitalisation is $2.99 billion with a price earnings ratio of 22.99, making a sell down of the Government's 76 per cent stake hugely profitable for Finance Minister Michael Cullen if he were tempted to sell (he says he's not).
That nearly $3 billion market capitalisation (three times the effective valuation the Government put on Air New Zealand at the 2001 bailout) could plummet if the Qantas bid is formally closed off. But by 10am (NZ time) yesterday the Qantas takeover was again in play.
The consortium believed it now had 50.6 per cent of Qantas's shares after one of the funds made a belated acceptance. The private equity-led consortium would apply to the Australian Takeovers Panel to try to get the belated acceptance recognised so the offer could proceed to the second stage even though it was not received by closing time.
It's nail-biting stuff for Jackson, the Qantas directors and CEO Geoff Dixon's management team.
The Qantas board rejected the initial takeover offer. But Jackson hoisted her colours to the Macquarie Bank-led consortium far too early by endorsing an improved bid as compelling. Dixon's team is poised to win big from the $A160 million pool of APA shares the consortium will put their way if they meet performance incentives.
The whole affair has left a sour taste across the Tasman.
It all comes down to the short-sighted recommendation by the Qantas board to recommend APA's offer as great value for shareholders too early, so dampening any prospect of a higher offer.
The Australian All Ords index has risen by 15 per cent since the offer was announced. But the Qantas share price has not traded up above the APA offer price.
At issue, just what did APA, which plans to extract $A4 billion capital from the airline within months of gaining control, know about the underlying business at the start. And why did Jackson's board not insist on an offer price nearer the $A5.98 a share upper valuation that Grant Samuel produced. Brokers' consensus forecasts are, after all, running at $A6.60 a share, $A1.15 more than the bid price. And are Dixon and his team compromised by the sweetheart deal the private equity consortium has sewn up to underpin the takeover?
To what extent did they argue for a higher valuation or to what extent were they encouraged by their sweetheart deals to go along with APA's friendly takeover with its substantial management inducements. These are serious issues that deserve wider debate.
Some objections were over-come when APA announced the minimum acceptance figure for the bid to go unconditional would be 70 per cent.
APA needs to get to 90 per cent to move to full ownership and secure Qantas cashflow into the future. If it can't, its banking convenants will be kaput.
