APA bid hits heaps of turbulence as funds reclaim Qantas shares

A report by Steve Creedy, The Australian’s Aviation Writer yesterday says that the Qantas board has rejected calls for another profit upgrade, saying a continued review of the company’s outlook had produced no material change since a guidance announcement last month.

A supplementary target’s statement released this week confirms board supports for Airline Partners Australia’s $5.45 per share bid for the airline and urges investors planning to stick with the airline to consider the “materially changed risk profile” of becoming minority shareholders.

But the urging came as APA revealed that its potential stake in the company had fallen to 28.86% from 30.06% and while acceptances rose slightly to 12.15% instructions held under the institutional acceptance facility fell from 18.39% to 16.71% as overseas institutions withdrew their promises so they could sell on-market and reportedly take advantage of the high dollar.

The bid took another hit today with APA revealing another fall in acceptances by institutions, with the consortium’s potential stake in the company were now down to 27.48%.

In addition, instructions held under the institutional acceptance facility are now down to 15.21% per cent while the number of shares in which APA actually has a relevant interest crept up to just 12.27% from 12.15%.

APA said on Wednesday that the decrease in promised acceptances under the IAF reflected withdrawals by local and offshore institutions wanting to sell their stakes on market at a discount to the offer price.

The consortium believes the overseas institutions are taking advantage of the high Australian dollar to sell now.

Qantas shares were up 1c at $5.37 in mid-morning trade today.

Qantas’s statement also called on bid consortium APA, which last week lowered its minimum acceptance levels from 90% to 70% of the airline’s share, to bring the four-month old bid to a conclusion as soon as possible “in the interests of all Qantas shareholders”.

The eight-page document urged shareholders to seek professional advice about implications of the bid, ranging from change of control provisions to the removal of Qantas from all S&P/ASX indexes and the likelihood that lower liquidity would make it harder to sell shares.

It said there was no guarantee that minority shareholders would get the $5.45 per share offered by APA but conceded the rewards could also be higher.

In sticking by its advice that shareholders accept the $5.45 per share APA, the board said a better proposal had not emerged and the independent directors had no expectation that one would.

As a result, they had either accepted or confirmed their intention to accept the APA offer, the board saying it believed the reasons for accepting the bid outlined in the original target’s statement remained relevant, these including the fact that the offer valued Qantas shares higher than they had ever traded, it was a significant premium to historical trading prices and an independent expert had declared it fair and reasonable.

Backing their previous guidance that fiscal 2007 results would probably be around 40% higher than the previous year and pre-tax profit for fiscal 2008 would be about $1.23 billion, the directors again noted that this did not take into account potential negative factors such as higher competition and rising fuel prices.

Investors were warned to seek professional financial, taxation and legal advice about a proposed APA capital management policy that would see $4 billion taken from the company in the first 12 months.

While acknowledging returns to minority shareholders could be higher than under the APA offer, the statement said potential issues included covenants on existing debt and adverse income and CGT consequences that might arise from distributions being mainly unfranked.

The document also revealed that the board had considered a capital management scheme similar to APA’s but rejected it after an analysis had raised concerns about the effect of higher debt on the airline’s investment-grade credit ratings and its profile as a public company.

The board concluded that the plan was inconsistent with the expectations of Qantas investors and could not be offered to existing shareholders without giving them a viable mechanism for quitting their investment, adding, “Your independent directors note that Airline Partners Australia has a different appetite for implications and risks of that kind,” with the statement coming as UBS Nominees announced it had increased its stake in the airline from 10.4% to 11.4% with a UBS spokeswoman saying that the additional shares had been bought on behalf of clients.

Report by The Mole from The Australian