May 05, 2007

US$8.9 billion Qantas bid may live on after late acceptance by stakeholder

SYDNEY, Australia (AP): A group offering 10.8 billion Australian dollars (US$8.9 billion; euro6.55 billion) for Qantas Airways hoped its bid was still alive Saturday after winning over a key stakeholder just hours after a deadline that appeared to have killed the deal.

In a dramatic turnaround, Airline Partners Australia said it had secured the minimum 50 percent stake in the iconic company known as the Flying Kangaroo it needed to get an extension on it's A$5.45-a-share offer.

But the acceptance that potentially saved the bid came in after the Friday evening deadline had passed, and APA must now ask regulators to allow the bid to proceed.

"On Friday evening, APA announced that, subject to confirmation, it appeared that the offer had failed to reach the 50 percent level required for the offer to proceed,'' APA said in a statement issued early Saturday morning.

"However, subsequently on Friday, APA received an acceptance from a large investor, which would be sufficient to take acceptances for Qantas shares to more than 50 percent,'' it said.

With the late acceptance, APA has 50.6 percent.

"What happened was a stunning surprise,'' BBY aviation analyst Fabian Babich said on Saturday.

APA said it would ask the Takeovers Panel _ a business group given powers by the Australian Securities and Investments Commission to resolve takeover disputes _ to let the bid proceed.

If regulators allow the bid to proceed, APA needs to reach 70 percent in the next two weeks for its financial package of loans to kick in and the deal to proceed.

Babich said the late acceptance was a "hiccup'' that should be allowed, but that uncertainty would surround the bid until the matter was resolved.

"On a commercial consideration basis you can argue that the acceptance hurdle has been reached, but on a legal basis there is now uncertainty,'' he said. The Qantas board, which backed the APA bid and will likely come under intense criticism if it fails, was meeting Saturday to discuss the situation.

Brent Mitchell of Shaw Stockbroking said achieving the 70 percent target looked to be a huge challenge for APA.

"It's now running up against some of the hardcore shareholders who have indicated they wouldn't accept this bid at the current price,'' Mitchell told Australian Broadcasting Corp. radio.

Analysts say a collapse of the offer would likely take Qantas' stock price with it, as many shares are held by hedge funds that are likely to quickly sell down their holdings if the bid fails. Qantas shares closed up 1 cent Friday at A$5.38.

The development was the latest twist in an often rocky passage for the bid, being led by Australia's Macquarie Bank and Forth Worth-based TPG, formerly known as the Texas Pacific Group.

It faced strong opposition from labor unions and others who fear Qantas, formerly a government-owned company, could be broken up or its ownership taken overseas _ something barred by law.

Prime Minister John Howard's government gave the bid the go-ahead after regulators found it did not breach foreign investment laws or specific legislation that aims to keep Qantas an Australian company.

The bid was also controversial because its structure adds a massive debt load to the company while earning board members and takeover partners such as Macquarie huge fees. Moody's Investor Services has warned that Qantas' Baa1 credit rating could be downgraded several notches to Ba3 if the takeover proceeds.

The group plans to raise up to A$7.5 billion (US$6.2 billion; euro4.56 billion) in debt and A$3.5 billion (US$2.9 billion; euro2.13 billion) in equity to fund the acquisition, then use its controlling stake to return about A$4 billion (US$3.3 billion; euro2.43 billion) in capital to shareholders within 12 months and burden Qantas with more debt.

To date, the 2001 buyout of telecommunications company Optus by Singapore Telecommunications, or SingTel, for about A$14 billion is considered Australia's biggest corporate takeover. But the size of the Qantas deal could be overshadowed by plans by retailer Coles Group for the full sale or breakup of the A$19 billion (US$15.6 billion; euro11.5 billion) company.


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