APA bid takes another hit

A report this morning by Mathew Murphy in The Age says that APA’s $11 billion bid for Qantas has taken another hit, with acceptances again declining and analysts split on the likelihood of the takeover succeeding.

With only days remaining until the Friday deadline, APA revealed it had lost more than 45 million shares through withdrawn acceptances since its last update, when it appeared to have stemmed the loss of acceptances.

Its Qantas stake now stands at 25.51%, down from 27.8%, but some within the Macquarie-led consortium are believed to be nervous about whether it will reach 50% of acceptances before 7pm on Friday. If the consortium achieves acceptances of 50%, then under law, the offer will be extended for two weeks.

Under the revised bid, APA will need to reach 70% by the end of the two weeks.

The required level of acceptances was lowered to 70% after Balanced Equity Management’s Andrew Sisson indicated he would not sell his fund’s 4% stake and UBS looked likely to follow suit, making a 90% target unobtainable.

The fall in acceptances reported yesterday was the third in a month and it came despite a large advertising campaign and APA chairman Bob Mansfield urging people to sell their Qantas shares, with in a statement, Mr Mansfield having reminded the market that major investors “usually waited until the last week before accepting offers to ensure they retained control of their investment”.

While a flood of acceptances from hedge funds and institutional investors  expected towards the end of the week, the biggest attempted airline takeover in history remains on a knife’s edge, with the big question being whether APA will get enough acceptances for the takeover to proceed.

“I have heard that question a few times,” said a source inside the takeover. “The answer? Well it could come down to the wire.”

Analysts are also divided on the issue.

Shaw Stockbroking transport analyst Brent Mitchell said he did not believe the bid had enough momentum to get over the line, saying, “They’re struggling aren’t they?” adding, “What happens in these sorts of situations is that if people don’t think it is going to succeed then they won’t accept.”  “So you need to build some momentum.”

“I think they will struggle to get to 50% if at all and I don’t think they will get to 70%.

If they don’t build any momentum over the next two days then I don’t think they will even get to 50%.”

BBY aviation analyst Fabian Babich disagreed, saying a last-minute rush would eclipse the 50% target, adding, “Investors will wait until the last minute, probably Thursday or Friday, before accepting in droves. It will get up”.

Qantas’ share price was unchanged yesterday at $5.32 and with the Qantas takeover nearing its end, Standard & Poor’s has issued a warning for Australian and New Zealand airports to brace themselves for weaker credit quality if APA’s offer is taken up.

A few weeks ago, S&P signalled that Qantas’ long-term credit rating was likely to fall to below investment grade if the takeover went ahead, with the credit implications due to be felt at the region’s major airports due to Qantas’ debt-laden structure with S&P also warning that the airline was more likely to default “during times of market distress than in the past”.

The tip from the experts:

Will APA get enough acceptances for the Qantas takeover to proceed?

Andrew Sisson, Balanced Equity Management: “Probable, but not certain” to get to 50%.

Jason Bloom, head of transport research, Deutsche Bank: “I would say they will get to 50% and then 70% in the two weeks following.”

Fabian Babich BBY aviation analyst: “Investors will wait until the last minute … before accepting in droves. It will get up.”

Brent Mitchell Shaw Stockbroking aviation analyst: “I think they will struggle to get to 50 if at all and I don’t think they will get to 70.”

Mark Williams ABN Amro aviation analyst: “I think they will get there,” (to both 50 per cent and then 70 per cent).

Michael Heffernan Austock senior client adviser: “I don’t think they’re going to get there somehow … there’s too many uncertainties”.

Angus Gluskie, White Funds Management Managing Director: “There’s been much inertia to date from (the key) participants and we think they’re prepared to play it out.”

Gary Stone, ShareFinder Investment Services Managing Director: “I don’t think that it will go ahead because there is not enough positive feeling surrounding the deal”.

Bob Mansfield, APA Chairman: “The majority of small shareholders have already accepted and the bigger investors generally don’t commit until the last day.”

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Report by The Mole with material from The Age