AUSTRALIA: Australian airline Qantas accepts 8.7 billion U.S. dollar takeover by foreign companies.

Australia's Qantas Airways agreed on Thursday (December 14) to a sweetened A$11.1 billion ($8.7 billion) buyout offer led by Macquarie Bank Ltd. and private equity firm Texas Pacific Group. Qantas chairman, Margaret Jackson, said the offer of A$5.60 a share, 10 percent above Qantas's last trade, was unanimously endorsed by the Qantas board after the bidders dropped their demand for a break fee and simplified other conditions. "It's a very momentous and exciting day for Qantas. Last night the board received a compelling offer from Airline Partners Australia. It is an offer that my colleagues and I recommend unanimously to the shareholders", Jackson said. The board had rejected an offer of A$5.50 on Wednesday (December 13). The chairman of Airline Partners Australia, the consortium of new owners, Bob Mansfield, said the new ownership would not take any moves that would damage the airline. "The Qantas management growth strategy that we support does not involve a break-up of the airline, does not involve cuts to regional services and it does not involve moving maintenance operations offshore. We will not be doing anything that undermines the growth and the potential of this great airline", Mansfield said. Qantas CEO Geoff Dixon said the change in ownership would be positive for investors as the company had previously been undervalued. "I feel it's time for the shareholders to be rewarded. As I think Margaret said I think this company has been consistently undervalued, so I think the circle has probably been drawn right around now. The shareholders will be getting something, and we'll go forward we're very confident of the new owners", Dixon said. Qantas shares jumped 5.5 percent to a record high A$5.37, but remained below the offer price, suggesting that investors were not going to hold out for a better bid. The offer price is 29 percent higher than Qantas's share price before the airline said on Nov. 22 that it had been approached with a buyout offer. The bid values Qantas at 15.9 times forecast earnings, compared with regional rivals Singapore Airlines Ltd. trading at 12.9 and Cathay Pacific Airways at 17.8, according to Reuters data. The bidding team has been shaped to ensure it meets ownership caps on Australia's flag carrier, which require the airline to remain majority Australian-owned, with no individual shareholder owning more than 25 percent. The consortium, Airline Partners Australia, includes Allco Equity Partners with a 34 percent stake, Allco Finance Group with 11 percent, Macquarie with less than 15 percent and Canadian investment firm Onex Corp. and Texas Pacific with a total of less than 40 percent. Qantas management will hold a 1 percent stake, with Geoff Dixon remaining as chief executive for at least the next three years. Airline Partners Australia's spokesman, Bob Mansfield, looking to reassure politicians and unions, said the new owners would not break up Qantas, send its maintenance operations offshore nor cut regional routes. Dixon said there were no plans for asset sales built into the financial assumptions for the deal, but Qantas would continue to look at spinning off businesses like its catering arm. Texas Pacific stands out among private equity firms in that it has a history of investing in the airline industry. It rescued Continental Airlines from bankruptcy in 1993 and has held stakes in the former America West and Ireland's Ryanair Plc. Allco Equity Partners said that it would raise A$682 million to part fund its share of the acquisition, which would see it become Qantas's largest shareholder. Qantas chairman Margaret Jackson and managing director Geoff Dixon, known for their close ties to the conservative coalition government, are expected to lead the effort to persuade Canberra that the deal is in the national interest. The government has only once before blocked a takeover on national interest grounds, stopping Royal Dutch Shell buying Woodside Petroleum Ltd. on fears that Shell would develop offshore projects ahead of Woodside's local gas projects. The consortium will have to win over the U.S. and European arms of U.S. fund manager Capital Group, which together own 12.7 percent of Qantas, as the bid is conditional on securing 90 percent acceptance. ($1=A$1.27)

ITN Source | December 14, 2006

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