Brisbane Times – refusing shareholders could share in spoils

The Brisbane Times says that shareholders who have refused to accept the $11.1 billion Airline Partners Australia takeover bid could share in the spoils of the private equity group’s planned “capital management review” of the airline.

Renegade shareholders may enjoy a substantial windfall by holding on to their shares after the consortium yesterday confirmed it would pay $1.5 billion of Qantas’s retained earnings as dividends and make a $2.5 billion capital return within 12 months of taking control of the airline.

This would amount to $2.23 a Qantas share.

“Although Airline Partners Australia has not finalised its intentions in this regard, its current expectation is such [that] management policy may involve capital reductions of up to approximately $4.5 billion in aggregate and payment of dividends of up to 100% of Qantas’ retained earnings,” the consortium said in a statement to the market.

Shares in the carrier surged 8c to $5.39 as confidence grew that the stalled $5.45-a-share bid could now succeed before its revised May 4 deadline, after the consortium lowered its condition of gaining 90% of the carrier to 70%.

In a veiled swipe at fund managers UBS Global Asset Management and Balanced Equity Management, APA spokesman Bob Mansfield said in a statement the consortium was “concerned that many Qantas shareholders have become discouraged from accepting the offer in the belief that the opposition to the offer from a small number of vocal shareholders may prevent us reaching the 90% acceptance condition”.

Given 30-odd% of Qantas’s shareholder base has already accepted the offer and 40% is held by hedge funds, it is believed APA already has enough support to get the deal over the line.

With the minimum acceptance condition lowered to 70% and a new debt package negotiated with APA’s bankers, Mr Mansfield said he was confident the takeover would now proceed.

Some of the dividends and payouts will be funnelled directly from an extra $US1.7 billion ($2.1 billion) loan provided by APA’s lenders to Qantas.

Unions were alarmed at news of the planned payouts.

“We are investigating the industrial and legal options open to employees to protect themselves and the Australian flying public from these blatant asset strippers,” said ACTU senior industrial officer Richard Watts.

“This is an action Gordon Gekko would have been proud of.”

BBY analyst Fabian Babich said the capital payout confirmed “APA runs the company on a more riskier basis”.

“It’s in line with the view that the bid has been at least about capital management as it has been about operational management,” he said.

In an attempt to further scare remaining Qantas shareholders into accepting the offer, APA’s Mr Mansfield highlighted the competitive threat posed by Emirates, Etihad and Qatar airlines along with the imminent entry of Tiger Airways into the domestic market.

There was no mention of the airline’s three recent profit upgrades and bumper passenger loads.

Mr Mansfield also declined to rule out APA selling some of the purchase rights Qantas has on scarce new aircraft to other carriers.

Despite two of APA’s largest shareholders being aircraft leasing companies – Allco Finance and Macquarie Bank – Mr Mansfield said there had been “no discussion” to sell the rights Qantas has to purchase an extra 70 Boeing 787s on top of its existing 45 787 order.

Given the lack of available aircraft worldwide, it is believed APA could make a huge profit selling these rights to airlines desperate to get their hands on new aircraft.

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Report by The Mole