Outcome over $11b Qantas takeover up in the air
Date : 06/05/2007
Reporter: Alan Kohler
ALAN KOHLER: Well has the $11 billion takeover bid for Qantas by the Airline Partners of Australia consortium crashed or will the Takeovers Panel save the day? Well, at 7pm on Friday the bid was dead, having failed to get the 50 per cent of acceptances needed to keep it alive. APA then put out a statement at 8.30pm saying goodbye to Qantas and wishing everyone all the best for the future. Then late that night a big New York hedge fund run by Samuel Heyman said it wanted to accept for 5 per cent, which would give APA 51 per cent. At 5:00am Saturday another statement was issued saying that APA would now ask the Takeovers Panel to allow the bid to remain open. And so it was that yesterday there were meetings everywhere - the Takeovers Panel, the Qantas Board and APA. All meeting, but so far - no conclusions. To discuss what it means I thought we'd have a meeting of our own. I'm joined by our regular market watcher, Tom Elliott who runs a takeover arbitrage hedge fund, MM&E Capital and the head of research at Shaw Stockbroking and long-term Qantas watcher, Brent Mitchell. Well, welcome gentlemen.
BRENT MITCHELL, SHAW STOCKBROKING: Thank you.
ALAN KOHLER: Tom, can you think of any good reason for Sam Heyman to forget to put in his acceptances?
TOM ELLIOTT, MM & E CAPITAL: Actually I can't. I mean I have seen a number of stuff ups in the past for takeovers. What I believe was happening was that the Heyman hedge fund, which I think has up to 10 per cent of Qantas, honestly wasn't sure whether to accept the bid or whether to accept for just part of its shares but I think the assumption that they made was that the bid would get at least to the 50 per cent level thereby extending it for two more weeks. I think they were probably a bit shocked when it didn't get to 50 per cent on Friday night and hence their coming in at the last hour, in fact past the takeover deadline, and saying they did want to accept.
ALAN KOHLER: Well, why wouldn't they accept on Friday anyway, I mean, and wait for another two weeks? They had a billion dollars in the game, surely they'd want to just get their money out.
TOM ELLIOTT: Well from what I understand, there is a bit of a division within that hedge fund about whether to accept for all their shares or whether to keep some and invest, effectively, alongside Airline Partners and they thought that they probably had 14 more days to make up their minds and, of course, what's happened is that, you know, the bid looks like falling over. We don't quite know whether it has completely fallen over yet but without their acceptance it clearly has.
ALAN KOHLER: I'm actually wondering whether a lot of hedge funds made that sort of decision because, you know, I mean, they're supposed to own 45 per cent of the company and that made APA assume they'd get 50 per cent easily but, in fact, they've only just, even with Heyman, theyve only just fallen across the line.
TOM ELLIOTT: Well this is the thing. That 40 to 45 per cent number has been trotted out a lot of the time. Interestingly, almost every time there's a takeover with a lot of trading, people always trot out the 40 to 45 per cent number. No one really knows how much of Qantas hedge funds actually hold. The fact that Macquarie and the other Airline Partners people only got to about 46 per cent suggests, perhaps, that hedge funds own less of Qantas than previously thought or there's some alternative game out there that we don't really understand, but I don't think that's what it is. I think there's just been a few major miscalculations.
ALAN KOHLER: And Brent, what do you think the Takeovers Panel is going to say now that APA goes along and says well look, Sam Heyman really was going to accept, he's very, very sorry, but can we have his shares now?
BRENT MITCHELL: Look, I think the Takeover Panel faces a very difficult decision. There is no previous precedents and if they allow this to continue they're setting a precedent that they may not want to honour in the future, so obviously I think it's more likely to stop the bid at this point and not allow it to continue.
ALAN KOHLER: And leaving aside all the shenanigans of the hedge funds, is the problem, the fundamental problem, that whereas $5.45 looked pretty good last November, things have changed now and basically it's not a good price anymore.
BRENT MITCHELL: Look, the Australian airline industry has improved significantly and that's reflected in passenger numbers and ticket yields. And also, the Australian market has gone up a significant amount, so in relative valuation terms, Qantas is now valued at significantly above the previous takeover price.
ALAN KOHLER: Yes, well, not withstanding that, Tom, do you think the price is going to fall if the bid now fails?
TOM ELLIOTT: Oh, look, I think it will. There's still a lot of short-term money in Qantas. I mean, we're talking about hedge funds that might have accepted and are now finding, of course, their acceptance isn't worth anything and, of course, a couple of months ago when it looked like the takeover bid was first going to fall over, when they still had the 90 per cent condition, we did see the stock retrace briefly back to below $5, but I agree with Brent. I don't think it will fall that far. It will fall, probably to around $5 but it could certainly recover. Having said that, a lot will depend on what Airline Partners says. Will it give an indication that it may come back again in the future?
ALAN KOHLER: Yes, well, and Brent, what about the fact that it's probably in breach of the Qantas Sale Act in terms of the number of the foreign shareholders it's got - in excess of 49 per cent. Won't the Qantas Board have to force some of the foreign shareholders to sell?
BRENT MITCHELL: Yes, I think they'll have to sell, but how they do it and the mechanism to do, it is a bit difficult to work out. Obviously, if the bid fails some of those hedge funds and foreign investors will want to exit the stock as quickly as possible to put their money to use elsewhere, so it just depends on how aggressive that selling comes and the timing of that selling.
ALAN KOHLER: And where do you think the local buying is likely to come in. I mean, at what level, what price do you think is going to be the floor?
BRENT MITCHELL: Look, I think the, you know, the $5 is a nice round number, whether it tracks below that or not will, intra-day, will depend on how aggressive those sellers are but certainly, at that sort of level, it's likely to attract a lot of local interest.
ALAN KOHLER: And what about the Board? Just say you guys are both shareholders of Qantas, do you vote them off the Board, the directors, or what?
TOM ELLIOTT: Well, I think knowing the board is a very difficult time now because, I mean, the chairman of the company Margaret Jackson, she's come out and said, well, you know, that you have to accept the bid - the bid's not going ahead. An interesting parallel is Alinta. The CEO, several senior directors and the chairman all resigned, post that bid. I don't really see that it's very different for Geoff Dixon. They've nailed their colours to the mast and I think they're going to be - will hoist to them. Having said that, I don't think Geoff Dixons going to go. I think he'll stay on. But the chairman, I think she might have to go.
ALAN KOHLER: And do you agree with that?
BRENT MITCHELL: Yes, I agree with that. I think there'll be a lot of interest in the existing shareholders for Geoff Dixon to continue, for a continuation of the operations, and possibly to put into place some of the strategy that they were proposing under the private equity acquisition, that was obviously going to drive growth at a higher rate than currently it would have been under the present structure.
ALAN KOHLER: Do you think there are any lessons out of all of this for the markets?
TOM ELLIOTT: Yes, I think there are. Firstly if you're going to bid for a company, buy some shares in it first. A lot of bidders in takeovers don't heed this rule. Secondly, don't declare a bid final so early in the piece. Airline Partners gave themselves no room to move when they declared the bid final at what was the equivalent of $5.45. They could have shaken all these recalcitrant funds loose with another 10 or 20 cents and they probably would own 100 per cent, so I think that's a big mistake that they made too early in the piece.
ALAN KOHLER: And Brent, finally, do you think that...
BRENT MITCHELL: I'd add something to that. I think to offer some sweetheart deals to some of the senior executives, like happened in this bid, can upset some of the shareholders and turn them against accepting the bid.
ALAN KOHLER: And do you think there'll be another bid?
BRENT MITCHELL: Look, I think it's unlikely from another party. I think the parties in this consortium have a lot of other interests, which theyre pursuing, and so whether they come back or not is difficult to work out. I think it will depend on the status of the Australian airline market and what the price of Qantas does settle at.
ALAN KOHLER: Thanks very much for joining us, gentlemen.
TOM ELLIOTT: Thank you.
Please note: Transcripts on this website are created by an independent transcription service. The ABC does not warrant the accuracy of the transcripts.
VIDEO:
At 7pm Friday, the $11 billion takeover bid for Qantas was dead. Having failed to get the 50 per cent of acceptances needed to keep it alive, APA put out a statement at 8:30pm saying goodbye to Qantas and wishing everyone all the best for the future. Then late that night a big New York hedge fund said it wanted to accept for five per cent, which would give APA 51 per cent. At 5am Saturday another statement was issued saying that APA would now ask the Takeovers Panel to allow the bid to remain open.
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