APA’s Bob Mansfield’s plea to Qantas holders

A report in The Australian this morning says that APA spokesman Bob Mansfield has urged Qantas shareholders to accept the offer of $5.45 a share, warning that the airline faced increasing competitive pressures and its shares could fall if the bid lapsed.

In a statement issued yesterday, Mansfield said the APA consortium was still committed to pursuing a full takeover offer for Qantas, despite Friday’s announcement by fund manager Balanced Equity Management, which owns just under 4% of the airline, that it would not be accepting the APA offer.

Members of the Macquarie Bank-backed consortium held crisis talks at the weekend to consider the bid’s future, with Mr Mansfield confirming APA was “considering a range of options to ensure the successful completion of its offer”, expected to include reducing from 90% to 50% the minimum acceptance condition for the bid as a short-term strategy to let the consortium gain management control of Qantas.

APA is believed to be going back to its bankers, who set the 90% acceptance condition, to find out if they would fund a bid that gave them less than full control of Qantas temporarily.

He added, “There are around 120,000 Qantas shareholders and the the fact that one institutional shareholder has declined the offer in no way deters us from successfully completing this transaction with the overwhelming majority of shareholders who complete it.”

“The general consensus is that if this offer is not accepted, the Qantas share price will fall.”  “Qantas shares have never traded at or above our offer price.”

“While there has been a broad increase in the share market since the offer was launched, there has also been a significant shift in the competitive pressures facing Qantas.”   “In addition to these competitive threats, Qantas has also foreshadowed the need to spend $13 billion on new aircraft over the next few years – which is significantly below its market capitalisation.”

Reducing the 90% acceptance condition carries the risk of APA having to fund the debt on the takeover for an indefinite period without access to Qantas’s cash flow, with the bidders locked into paying interest on a debt of at least $5 billion to $8 billion, the smaller hold-out shareholders, who have no debt, could have much more market leverage against them.”

With the bidders wanting to keep up the pressure to finalise the bid, “It’s all about momentum,” a source said yesterday, adding, “Keeping up the momentum is important.”

Reports are expected to confirm this week that UBS Global Asset Management, which is reportedly opposing the APA bid but has not confirmed its position, has raised its stake in Qantas from 5.5% to about 7%.

The combination of UBS and Balanced Equity would be enough to scuttle the present APA bid with Qantas shares falling to $5.06 on Friday on fears the bid could fail.

The takeover deal is being watched closely by the Australian Securities and Investments Commission as although the bidders could technically come back with a higher offer if they let the current bid lapse, there are increasing concerns about the potential of a major legal action against the consortium for “misleading conduct” if it increased the offer.

Having declared the existing bid “final”, if APA were to subsequently increase its offer price in a new bid, shareholders who have sold out during the course of the present bid could argue they had been “misled” by APA’s comments and could sue for the difference between the higher offer price and the price they sold their shares at.

Given more than 80% of Qantas shares have changed hands since the bid was announced in December, with major international institutions such as the Capital group, Franklin Templeton and Barclay Global Investors having sold large share parcels, the potential for damages could be substantial.

Analysts say ASIC could take a tough view on whether coming back with a higher offer, after APA’s comments during this bid, would also represent misleading conduct.

Report by The Mole