QANTAS sold for $11 billion.

[corsair67]

Is this all really a such good thing???


From The Australian.



Qantas sold for $11bn
Steve Creedy, Aviation writer and Michael West
December 14, 2006.


CORPORATE raiders last night struck a deal worth $11 billion to take over Qantas, after sweetening an offer that was rejected by the airline's board earlier in the day.

Airline Partners Australia increased its offer by 10c a share to swing the Qantas board in favour of the deal.

A source close to the deal said insiders - after weeks of tense negotations - were confident an agreement would be signed today.

Qantas's non-executive directors earlier said a $5.50 per share cash bid by the consortium was not acceptable, citing the complex terms of the offer. It is understood they were also not happy with the bid price or a $100 million break fee if the deal failed to go through.

Most of the conditions have been changed to placate Qantas directors.

Executive directors Geoff Dixon and Peter Gregg, who did not vote on the offer because it reportedly involves a 1 per cent stake for senior managers, later backed the rejection in a note to staff. "The Qantas decision has the support of all directors - including the non-executive directors, Peter Gregg and myself - and the senior executive team at Qantas," Mr Dixon said.

A source close to the talks said the airline had told the bidders to "get real", prompting the revised offer late last night.

The source said the board believed the original offer was not in the best interests of shareholders or the company. But Qantas was not "doing a Coles-Myer" and sending its suitors away, and negotiations were not hostile.

A source involved with the bidders indicated there were no unusual conditions in the bid.

News of the rejection of the original offer caused Qantas shares to plummet below $5 when they began trading after a brief suspension, but they recovered to close down 14c at $5.09.

The carrier's main rival, Virgin Blue, added to the pain by announcing it would push ahead with plans to launch an international airline on the flying kangaroo's lucrative Pacific route.

The original takeover proposal would have seen Qantas 60 per cent Australian-owned, giving David Coe's Allco Finance Group 11 per cent of the airline, Allco Equity Group about 34 per cent and Macquarie Bank less than 15 per cent. Offshore investors, including Texas Pacific Group and Onex, would hold less than 40 per cent of the airline, with no single investor holding more than 15 per cent.

It is understood the move to increase the bid to $5.60 per share was linked to bringing in other parties to reduce the exposure of the Allco group. Allco Equity, headed by Peter Yates, is related to Allco Finance and the group was looking at a combined stake of up to 46 per cent.

Allco leases aircraft to Qantas and has two former airline chiefs, Rod Eddington and David Turnbull, on its board.

While it is understood Sir Rod has no interest in joining the Qantas board or being involved in its operations, Mr Turnbull is tipped to join Mr Coe and possibly former Telstra chairman Bob Mansfield on the board.

Analysts viewed the board rejection of the original offer as part of negotiating tactics.

"I think rather than being a landmark moment in the negotiation, they have done it to

respond to the speculation," JP Morgan analyst Matt Crowe said last night in anticipation of a revised offer.

"I don't think we interpret it as being the end of anything, but it shows they're still a fair way apart."

The deal would see the foreign component of the deal nine percentage points below the foreign investment limit and about 5 per cent less than the stakes held by foreign investors on November 8. The structure is designed to avoid reviews by the Foreign Investment Review Board and Australian Competition and Consumer Commission, though the federal Government has said it will still look at national interest issues.

Experts have warned a highly leveraged Qantas is more vulnerable to downturns from external shocks such as terrorist attacks and the major credit agencies say a takeover will reduce the airline's credit rating.

Moody's Investors Service said yesterday this could involve a "multi-notch" downgrade.

However, analysts said that popular suggestions the consortium could cut and run in a downturn were overblown.

There are also fears the new owners would be quicker to axe unprofitable regional routes kept open by Qantas for political reasons. And unions are worried sections of the company would be sold off and more work such as maintenance and call centres would be sent offshore.

Analysts say there are about $3 billion worth of assets open to review.

[planeimages]

The last time Australia sold an airline it folded. Remember Ansett? I just wish I had bought Qantas shares at $2.50.

[corsair67]

Well, there's a good way to minimise your tax! ;D


Dixon to give away windfall millions
Steve Creedy
December 15, 2006.


QANTAS boss Geoff Dixon will join the top league of Australian philanthropists with a plan to forgo much of his windfall from yesterday's takeover of the airline and donate up to $60 million to charity.

If the deal is successful, senior executives at the company will share in a 1 per cent stake in the company made up partly of their own money but mostly funded by the Airline Partners Australia consortium that wants to buy Qantas.

Mr Dixon said yesterday he would be getting about the same pay and short-term incentives under the new owners and had decided with his family to put his long-term incentives, which make up most of his share of the 1 per cent stake, into a charitable trust.

That will mean projects such as medical research, indigenous health and education stand to receive $30 million over five years if Qantas makes a 15 per cent annual return, and $60 million if the return hits 25 per cent.

Mr Dixon was unable to say how managers would benefit from the 1 per cent equity deal but it was more than the nine executive managers and went "considerably further down the company".

Other executives, such as chief financial officer Peter Greg and executive manager John Borghetti, would also receive sizeable windfalls but Mr Dixon is the only one to disclose it so far and pledge it to charity. He said it was a personal decision. "I was very lucky to be getting the money and probably very lucky to be giving it away," he said.

"I'm just not a big accumulator of assets. We live very comfortably and so does my family ... and I can get quite excited about - provided we make the money - putting it into the trust and having it do a lot of good."

His decision to stay on at the airline for at least three years - and possibly five - means ambitious executives will have to cool their heels.

Ominously for his colleagues, Mr Dixon, 67, joked that he would like to stay around a lot longer, pointing to 96-year-old Qantas historian George Roberts, who still works three days a week, after 70 years at the company. "Now I did a medical recently and I think they said I was around about 47 or something like that," Mr Dixon said.

"So whichever way you look at it, I could be here for another 50 years."

The chief executive, whose pugilistic street smarts have earned him the nickname "the junkyard dog", was looking tired but relaxed as he unveiled the takeover bid that will deliver his airline into the hands of private equity. For Mr Dixon, this is to some extent undiscovered country. Although he has extensive experience in government and public companies, he has never worked for a private outfit.

"It is a bit of a journey of discovery," he admitted last night. "I certainly am impressed with the people I met last week and I don't think it's going to be that much different.

"All the issues we've had facing airlines in the last six or seven years will be there."

That Qantas has weathered the issues that have hammered airlines in the past six years and emerged in a stronger position is probably why yesterday's deal was contingent on Mr Dixon and his management team staying with the airline.

Known as a canny marketer, the Qantas boss has no qualms about moving against the conventional wisdom, and sometimes cops flak because of it.

His aviation background stretches back to 1986, when he joined Trans-Australian Airlines before moving to Ansett and joining Qantas in 1993. Before that he was a journalist, worked in mining and pursued a career in foreign affairs.

Now he will be dealing with a new board with experienced aviation players such as the Texas Pacific Group and former Cathay Pacific boss David Turnbull.

"I'm sure I'll be getting a lot of advice but I'm a person who can deal with that," he said.

He is also looking forward to dealing with owners who have an outlook that goes beyond the quarterly orientation of the market. He believes going private will allow management to plan ahead more effectively and do things a squeamish market might have been concerned about. He is also not unhappy about removing Qantas from some of the intense scrutiny it receives.

But basically, he says he is staying because he loves the job.

[corsair67]

There seems to be a lot of unease about this whole deal.; and gee, I wonder why???


$11 billion offer finally lands Qantas
Steve Creedy, Aviation writer
December 15, 2006.

THE consortium attempting an $11 billion takeover of Qantas yesterday moved to allay fears its bid would damage the airline as politicians and analysts warned of a public backlash.

The Qantas board confirmed it had unanimously accepted the bid from Airline Partners Australia and was advising shareholders to take up the offer of $5.60 a share.

But the move is already causing nervousness in Canberra, where politicians raised concerns about possible cutbacks in regional routes and the prospect of unhappy travellers during an election year.

Analysts are also expecting a public backlash, despite assurances from the consortium that it would not break up the airline, cut regional routes or send maintenance jobs offshore.

Nationals senator Barnaby Joyce was one of the few to criticise the deal publicly, but several expressed private concerns.

Unions reacted to the news by threatening to campaign in marginal seats and demanding that Qantas management sign enforceable undertakings that jobs would not be lost.

Asked whether he would entertain the union request, Qantas chief executive Geoff Dixon said: "No."

The unions also called for federal government intervention to protect Qantas and its employees, but comments by senior ministers yesterday indicated this was unlikely.

John Howard said the transaction was one for the financial markets, though he hoped the airline would keep its character. Opposition Leader Kevin Rudd raised concerns about the need to ensure there was no conflict of interest with consortium partner Macquarie Bank's ownership of assets such as Sydney airport.

Treasurer Peter Costello has indicated he will apply a national interest test to the proposal, but the bidders said yesterday they were confident it did not breach any legal requirements.

Qantas chairman Margaret Jackson, who will be among the long-serving board members to be replaced by representatives from the corporate raiders, said the offer of $5.60 a share allowed the airline's shareholders to realise value for their stock that had not been fully recognised by the market.

Ms Jackson described the offer as compelling and said the non-executive directors had recommended it unanimously.

The Qantas takeover, coupled with a raft of other multi-billion-dollar corporate deals before the end of the year, yesterday sent the stock market on a record-breaking rally.

The All Ordinaries is now likely to post its fourth consecutive double-digit yearly gain, after soaring 79.5 points to an all-time high of 5550.9.

The index has gained 17.9 per cent for the year to date, and added $200 billion to the value of all stocks, valuing the sharemarket at $1.29 trillion.

Under the proposed deal, the airline will be delisted from the stock exchange and taken over by a consortium of Australian and foreign investors. It will remain 60 per cent Australian-owned, with Allco Equity Partners taking 35 per cent of the voting stock, Allco Finance group 11 per cent and Macquarie Bank less than 15 per cent.

Offshore investors include the US-based private equity giant Texas Pacific Group, which will own less than 15 per cent, Canada's Onex (9 per cent) and other foreign investment funds.

The consortium yesterday pledged to support Qantas management and undertake a big spending program to underpin its current growth. It said it would maintain the airline's maintenance and safety record, and levels of service, and support plans to buy 70 new aircraft, worth $10billion, over the next five years.

"Qantas would retain the current Australian management and their growth strategy, a strategy that does not involve a break-up of the airline, cuts to regional services or the movement of maintenance operations offshore," said Airline Partners Australia deputy chairman Bob Mansfield.

Mr Mansfield, a former chairman of Telstra, said the airline would benefit from the "patient capital" of private equity that took a longer-term perspective than the day-to-day stock market.

"We recognise that (Qantas) faces a challenging environment, as any participant in the equity market does, and in our view the share market sometimes has a short-term perspective that constrains management for achieving their goals the way they'd like to," he said. "Our commitment is absolutely to help Qantas grow. We back completely the current Qantas management team under Geoff Dixon and his plans for the company."

Ms Jackson said it had been hard for the board to balance shareholder, staff and community interests in considering the bid.

"I know some people will feel uneasy about this transaction," she said. "Qantas is an institution the public love and trust but I am comforted by those whom the board has recommended take over this business."

The deal will not be completed until at least March after an independent review verifies it is fair and reasonable and statements from both parties have been sent to shareholders.

Analysts are already advising shareholders to take the deal, which provides a 33 per cent premium on the November6 closing price of $4.20, arguing that it is an attractive deal.

But they said there was still not enough information to allay the fears of unions, airline competitors, the travelling public and politicians. "The game's not over yet," said BBY analyst Fabian Babich. "I think the details they gave today, to be honest, were not all that enlightening."

The deal was brokered after lengthy talks late on Wednesday.

The Qantas board rejected an initial bid of $5.50 per share but reversed that decision when the price was raised 10c and several conditions, including a $100 million break fee if the Qantas board recommended arival bid, were dropped or simplified.

Despite the encouraging statements from APA, Mr Babich said he was concerned about the lack of detail supplied by Allco and Macquarie, which stands to get up to $500 million in fees for completing the transaction.

"I suspect that the consortium hasn't passed muster yet with the general community about how it's going to run the national carrier," he said. "It's unsatisfactory from the general community's point of view to hear that it's going to be business as usual, because I just don't think they're going to swallow that."

Deutsche Bank analyst Jason Bloom estimated the plan now had an 80 per cent chance of success, but said there were still issues. "It doesn't breach any ownership caps or anything like that but obviously they'll look at it in terms of the national interest," he said.

"And given the federal election next year, I'm sure there will be a lot of interest groups that will be pretty vocal about it."

Additional reporting: Steve Lewis

[Peter Lewis]

corsair67 said:

There seems to be a lot of unease about this whole deal.; and gee, I wonder why???

Hmmm . . . looking at a possible scenario:
- the new corporate owners take over with a huge fanfair
- they cut costs wherever possible, including laying off people who earn too much (i.e. the skilled, experienced ones who can actually contribute to the successful running of the enterprise) and replace them with younger (cheaper) 'qualified' staff who graduated yesterday with an MBA
- the short term profit goes up rapidly as a result of this cost cutting exercise
- the corporate owners float a large part of the company to the public and get much more than their purchase cost back
- the airline runs into maintenace/reliability/PR problems because it is now being run by inexperienced bunnys
- the profits turn into losses and cash flow problems loom
- there is anxious talk of liquidation/bankrupcy
- the Australian Government gets worried about the loss of 'Our Airline' (now a private company, remember)
- the Australian Government (ie the Australian taxpayer) steps in and bails them out of the problem with a large cash injection
- The Australian Government ends up owing most or all the enterprise once again, and it has cost them a lot more than they sold it for in the intial sale.

Funny, I think I have come across that scenario before somewhere?
(NZ taxpayer, reluctant part-owner of Air New Zealand)

[corsair67]

Peter, as if any of that would ever happen to QANTAS?

(P.S: I also believe in Santa, the Tooth Fairy, Snow White and the Seven Dwarfs, and that there's a Black Panther living in the hills of Central Otago!) ;D

[corsair67]

From today's The Australian.


Pilots to fight for Qantas
Steve Creedy and Brad Norington
December 18, 2006.


QANTAS pilots are considering a plan to personally invest $50,000 each as part of a "blocking stake" to stop the airline's $11 billion sale to a private equity consortium backed by Macquarie Bank.

The stake by 2500 pilots would form part of a union campaign to encourage shareholders to reject the $5.60 a share offer from the consortium, Airline Partners Australia, to buy Qantas and turn it into a private equity company.

Unions are deeply worried that the bidding consortium plans to slash jobs, sell assets, cut regional routes and send maintenance work offshore to pay off debt, if the sale to a private investment fund is successful.

Australian and International Pilots Association president Ian Woods said yesterday Qantas's 2500 pilots may be prepared to invest in 1 per cent of the stock - worth about $110 million - if enough shareholders were willing to hang on to their investments to block the bid.

The consortium bidding for Qantas has said the deal will not go through unless it acquires the 90 per cent of shares necessary to force a compulsory acquisition of the other 10 per cent.

"It's an option that the pilots would consider, and it may well be in their long-term interests, but not until the 8 or 9 per cent (of people not willing to sell) is forthcoming," Mr Woods said.

Mr Woods said thwarting the Qantas sale deal could also depend on the support of union-friendly superannuation interests.

Unions have launched a campaign urging shareholders to ignore the windfall from the $11 billion bid for Qantas, with the ACTU trying to persuade shareholders the deal is bad for the public and the airline.

ACTU airlines spokesman Richard Watts said unions did not regard the sale as a good transaction in the interest of shareholders, the public or the airline.

Mr Watts said the ACTU would encourage people not to sell.

"Essentially, what we're saying is Qantas is a good long-term investment," he said. "They might make a few bucks if they sell now, depending on when they bought, but they will forgo a good long-term investment."

Mr Watts said the campaign would also focus on the potential impact of the heavy level of debt the takeover would involve on the economy as a whole.

The Qantas board on Thursday approved a $5.60-per-share bid for the airline, saying it provided shareholders with a 33 per cent premium on the November 6 closing price and better reflected the carrier's true value.

Australian Competition and Consumer Commission chairman Graeme Samuel said yesterday he would investigate concerns raised about the bidding consortium holding an interest in Sydney Airports Corporation at the same time as it potentially owned Qantas.

Mr Samuel told The Australian the ACCC was conducting a "normal process" to be concluded by February 22, but market concerns about competition demanded a rigorous review.

"This is a very high-profile takeover," he said. "Our focus is on competition, despite concerns others have raised about foreign ownership."

The bidding consortium claims it will be "business as usual" at Qantas following the sale and that it has no plans to break up the airline, cut regional routes or send maintenance jobs offshore.

But analysts are already speculating on potential asset spin-offs.

JP Morgan's Matt Crowe estimated that more than $2.5 billion worth of assets could be sold with a low degree of difficulty.

They include the airline's terminals, frequent flyer program, catering unit and holidays business.

Deputy Prime Minister and Transport Minister Mark Vaile yesterday gave no indication about whether the Qantas sale would get government approval.

Mr Vaile said the Government was keen to examine the competition aspects of the takeover, including any conflict of interest for Macquarie Bank, given its airport interests.

"Obviously, we will watch that very closely," he said.

Mr Vaile also ridiculed suggestions Qantas would wind back its popular frequent flyer program. "Commercially, if the new owners wanted to start dismantling that, it would be commercial madness," he said.

"It's not my decision, but you invest $11 billion into something, the strength of which is the brand -- Qantas and One World."

Australian Workers Union national secretary Bill Shorten called on the consortium to reveal its plans for the airline and said Treasurer Peter Costello should ask serious questions about the sale.

Mr Shorten said he feared maintenance work would go offshore and cheaper pilots could be sought outside Australia in a bid to cut costs and pay off debt.

Mr Woods admitted that his "blocking stake" proposal was a risky strategy, saying it would be difficult for Qantas investors to knock back the existing deal.

But he said Qantas had provided reliable revenue streams and there could be people prepared to take a longer-term view.

The pilots' union is also attempting to talk to the proposed private equity owners about its concerns and ways its members could take a role in the new structure.

The pilots' enterprise agreements are currently open, meaning they are able to take protected industrial action.

They already have concerns about plans by management to concentrate on low-cost carrier Jetstar, a move they believe will come at their expense by reducing wages and conditions.

Additional reporting: Steve Lewis

[Calum]

Good luck getting more than 10%... It's a done deal IMHO.