BA warns "hands off" as Qantas bid nears

In a report in the Australian today, former Qantas stakeholder British Airways has warned against any opportunistic approaches by predators such as private equity groups as the consortium seeking to purchase Qantas, said to be poised to make a formal bid by today

British Airways chairman Martin Broughton warned the Aviation Club in Britain that “all investors should be concerned and not sell their assets on the cheap”, adding that while the airline industry was destined for consolidation, executives and shareholders needed to be on their guard from “interim consolidators”, buyout groups that would grab airline assets cheaply and then on-sell them when genuine industry consolidation got under way.

British bankers and analysts believe that the $11 billion bid for Qantas led by Macquarie Bank and Texas Pacific Group will succeed with British Airways as potentially the next target.

It is understood the Qantas board believes it has supplied the consortium with enough information for it to finalise its position and some sources see a Tuesday offer as more likely than today, saying said the timing of a Board recommendation would depend on what conditions were attached to the bid and how quickly members could get together to discuss it.

The bid, which has been subject to some wrangling within the consortium, is still expected to be in the $5.50-plus range per share but not as high as the $6 touted by some analysts when Qantas recently upgraded its profit forecast to 30 per cent growth. Qantas shares dropped 15c on Friday to close at $5.05.

A bid of $5.50 would represent a premium of 26% on the closing share price of $4.35 on the day before the approach was confirmed.

One senior industry observer said he thought the bidders were “barking mad” to offer such a high price, but he added that the Qantas board would have no option but to recommend shareholders accept a bid of $5.50.

He said Qantas faced massive capital expenditure as it added new aircraft over the next few years and it was hard to see how investors would get the returns these sorts of deals typically required.  He believed Macquarie Bank, expected to reap about $500 million in fees from the deal, would move quickly to sell out of the airline.

A report from Hong Kong over the weekend indicated the bidders planned to use Qantas’s fleet of aircraft as security to raise half the estimated $10 billion in debt needed to finance the bid, with Bloomberg News saying it had been told by bankers “with knowledge of the deal” that Macquarie and TPG had asked six banks, Carlyon, Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley and Royal Bank of Scotland for final funding proposals.

The bidders believed that using the airline’s 217 planes as collateral would allow them to borrow at a lower cost by getting higher credit ratings and the remainder of the funding as senior loans.

Confirmation of a bid decision will mark the start of a process lasting several months, with the consortium understood to have structured the bid to get around foreign ownership restrictions in the Qantas Sale Act and opting for shareholdings below the 15% trigger for a probe by the Foreign Investment Review Board.

However, analysts have warned it might still have to seek approval if the parties were seen to be acting together with Treasurer Peter Costello indicating on Wednesday that the deal would be scrutinised under the Foreign Acquisition and Takeovers Act.

Report by The Mole from information from The Australian