Tuesday, May 08, 2007
(Related)
Greed Qantas Deal Scuttled by Hedge Fund Greed: Analysts
By Reuters Monday, May 07, 2007
MELBOURNE (Reuters)—Miscalculations by hungry hedge funds in a giant game of brinksmanship appear to be the key reason behind the crash of an A$11 billion (US$9.1 billion) takeover offer for Australia's Qantas Airways Ltd., analysts said.
Local newspapers named U.S. billionaire Samuel Heyman, who holds 11% of Qantas, as the investor who offered a 4.9% stake in the airline five hours after the deadline.
That would have pushed acceptances to 50.6%, and kept the deal alive for another two weeks, allowing hedge funds another two weeks to buy cheap stock. An array of hedge funds had bought more than 40% of the airline over recent months, analysts have said, expecting to make gains on the difference between the company's share price and the A$5.45 a share offer by bidding group Airline Partners Australia.
The stock has never traded up to the offer price as opposition to the bid has created uncertainty about its success, allowing hedge funds to buy from local investors who feared the share price would fall if the bid failed.
The bid group needed to reach 50% of shareholders acceptances by a Friday [May 4] deadline to trigger a two-week extension of the offer, before it reached the 70% level needed to close the bid.
Analysts said hedge funds hoped to engineer an outcome where the offer just edged over 50%, creating another two weeks of uncertainty and providing more opportunity to buy stock below the offer price from nervous retail and institutional investors.
Instead, they miscalculated. The bid group won just 46% of acceptances, scuttling the bid.
Hedge funds stand to lose hundreds of millions if the Qantas share price falls when trade resumes.
Qantas shares were placed on a trading halt on Monday [May 7] awaiting legal clarification about the bid, and analysts said some funds may hold on to their shares as they await APA's plans. APA said on Monday it was considering a fresh offer, again at A$5.45.
The stock closed on Friday at A$5.38.
"The rationale for gambling that APA got 50% and no more was to ensure that the stock continue[d] to trade at a discount, thereby allowing them to continue to pick up a few extra pennies," said an analyst, who asked not to be identified.
Theories abound for the error.
The Australian reported Mr. Heyman had agreed with two other hedge funds, Polygon Investment Partners and Highbridge Capital Management, to each deliver between 45% and 60% of their holdings by the deadline, which would have been enough to edge the deal over the 50% mark.
But Mr. Heyman was secretly determined to hold on to all of his Qantas shareholding, the newspaper reported in an unsourced front-page story.
The Sydney Morning Herald reported that Heyman Investment Associates Chief Investment Officer Jim Hoffman simply didn't believe increasingly hysterical calls from Sydney that the bid would fail without his acceptance.
Mr. Hoffman said only: "While we have consistently indicated to advisers that this has always been a close call for us, we are hopeful that our tender will facilitate the successful completion of the transaction," the paper reported.
Analysts said funds would have played the same game with the 70% level, betting that APA would buy out minority shareholders at a higher price and proceed with its original plan to delist the airline, analysts said.
If APA had won acceptances between 70% and 90%, it would still have been cheaper to pay a higher price of perhaps A$6.50 to minority shareholders than to raise its offer to all shareholders, JP Morgan analyst Matthew Crowe told clients last week.
The buyout group includes Macquarie Bank Ltd. and private equity firm Texas Pacific Group.
By Victoria Thieberger
Greed Qantas Deal Scuttled by Hedge Fund Greed: Analysts
By Reuters Monday, May 07, 2007
MELBOURNE (Reuters)—Miscalculations by hungry hedge funds in a giant game of brinksmanship appear to be the key reason behind the crash of an A$11 billion (US$9.1 billion) takeover offer for Australia's Qantas Airways Ltd., analysts said.
Local newspapers named U.S. billionaire Samuel Heyman, who holds 11% of Qantas, as the investor who offered a 4.9% stake in the airline five hours after the deadline.
That would have pushed acceptances to 50.6%, and kept the deal alive for another two weeks, allowing hedge funds another two weeks to buy cheap stock. An array of hedge funds had bought more than 40% of the airline over recent months, analysts have said, expecting to make gains on the difference between the company's share price and the A$5.45 a share offer by bidding group Airline Partners Australia.
The stock has never traded up to the offer price as opposition to the bid has created uncertainty about its success, allowing hedge funds to buy from local investors who feared the share price would fall if the bid failed.
The bid group needed to reach 50% of shareholders acceptances by a Friday [May 4] deadline to trigger a two-week extension of the offer, before it reached the 70% level needed to close the bid.
Analysts said hedge funds hoped to engineer an outcome where the offer just edged over 50%, creating another two weeks of uncertainty and providing more opportunity to buy stock below the offer price from nervous retail and institutional investors.
Instead, they miscalculated. The bid group won just 46% of acceptances, scuttling the bid.
Hedge funds stand to lose hundreds of millions if the Qantas share price falls when trade resumes.
Qantas shares were placed on a trading halt on Monday [May 7] awaiting legal clarification about the bid, and analysts said some funds may hold on to their shares as they await APA's plans. APA said on Monday it was considering a fresh offer, again at A$5.45.
The stock closed on Friday at A$5.38.
"The rationale for gambling that APA got 50% and no more was to ensure that the stock continue[d] to trade at a discount, thereby allowing them to continue to pick up a few extra pennies," said an analyst, who asked not to be identified.
Theories abound for the error.
The Australian reported Mr. Heyman had agreed with two other hedge funds, Polygon Investment Partners and Highbridge Capital Management, to each deliver between 45% and 60% of their holdings by the deadline, which would have been enough to edge the deal over the 50% mark.
But Mr. Heyman was secretly determined to hold on to all of his Qantas shareholding, the newspaper reported in an unsourced front-page story.
The Sydney Morning Herald reported that Heyman Investment Associates Chief Investment Officer Jim Hoffman simply didn't believe increasingly hysterical calls from Sydney that the bid would fail without his acceptance.
Mr. Hoffman said only: "While we have consistently indicated to advisers that this has always been a close call for us, we are hopeful that our tender will facilitate the successful completion of the transaction," the paper reported.
Analysts said funds would have played the same game with the 70% level, betting that APA would buy out minority shareholders at a higher price and proceed with its original plan to delist the airline, analysts said.
If APA had won acceptances between 70% and 90%, it would still have been cheaper to pay a higher price of perhaps A$6.50 to minority shareholders than to raise its offer to all shareholders, JP Morgan analyst Matthew Crowe told clients last week.
The buyout group includes Macquarie Bank Ltd. and private equity firm Texas Pacific Group.
By Victoria Thieberger
About Me Name: Clau Location: São Paulo, São Paulo, BR
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