Herald Sun – Two prices for one Qantas

Terry McCrann in The Sun Herald says that the APA bidding consortium has effectively announced it’s prepared to pay more than $5.45, perhaps much more, for any outstanding shares if it gets to between 70% and 90% of Qantas.

Of course it would only pay that, say for purposes of illustration, $7……if it gets at least 70% of the airline upfront at the cheap $5.45 price of its formal offer.

In those circumstances, those that sold at $5.45 wouldn’t get any more. Their willingness to sell at that price and to sell now, is necessary for both any residual minority and APA to make killings down the track.

Getting, say, 80% at $5.45 and 20% at $7 would average out at just $5.76 per Qantas share.

That’s not only a small extra price to pay.

Indeed, it would all be paid back by the cash building up inside Qantas between the offer’s start way back when last year and whenever the likely higher bid was made.

Either later this year or next.

It is also a striking demonstration of just how attractive Qantas is to the largely local APA barbarians.

They know, or at least they think they know, they can pay close to $6 on average for every Qantas share and still make a huge profit.

True, as I keep stressing, accompanied by big risk. That’s the nature of the highly capital intensive airline business and its vulnerability to pain from so many quarters.

That said though, that is entirely their choice. Nobody forced them to punt up to $3.5 billion in the hope of at least doubling that over three to five years.

And no Qantas shareholder should feel the slightest sympathy or sense of obligation to the bidders.

Especially not now that they want to get to their hoped-for multi-billion dollar profit by paying one price to the majority of Qantas shareholders and a much higher price if necessary to a smarter and risk-taking rump.

Of course what APA hopes will be the outcome, is not necessarily what it might achieve.

It hopes that by lowering its minimum acceptance condition from the hard-to-impossible to get 90% to 70%, it will actually achieve the 90%.

How so?

That shareholders would be worried about being locked into, and screwed by a company majority owned and controlled by APA.

And so in rushing to avoid that fate worse than death, they would deliver 90% and so 100% to APA.

It could…….should?……..work in exactly the opposite direction.

That too many shareholders realise that a bigger pot of gold awaits those that do not accept.

So lowering the minimum acceptance to 70% turns into a trigger for preventing APA getting to 70%……..And the whole bid falls over.

Especially as it is now mandatory, to stress absolutely mandatory, on someone to require APA to allow anyone who has already accepted the offer, to take their shares back.

That ‘someone’ can be various or all of the Qantas board, ASIC, the Takeovers Panel, one or more Qantas shareholders. In the absence as it seems of APA itself doing the right thing.

The offer has fundamentally changed in two ways that are absolutely critical to an informed decision by a shareholder whether to accept or to ride with a majority APA-controlled Qantas.

Indeed even, to prefer the offer to fall over.

The first is of course the reduction in the minimum acceptance condition from 90% to 70%.

This is obviously always an option in any takeover and would not normally be the basis for an argument the offer fundamentally changed.

But a highly leveraged private equity takeover is very different. Accepting shareholders before yesterday would reasonably have assumed it was 90% all or nothing.

It ultimately of course still is. That is precisely the point of my opening comments.

With two exceptions, APA still has to get to 100%.  And in the not too distant future.

It’s disclosure of its intention…….banking requirement?……..to pay $4 billion out of Qantas, mostly to itself, within 12 months notwithstanding.

That would only temporarily feed the hungry banks. It would still have to come back with a second bid high and tempting enough to take out minorities.

Provided they held their nerve and rode out the Qantas removal from the stock exchange indices.

But before yesterday, a Qantas shareholder could reasonably have concluded that either nobody got to accept at $5.45 or everyone did. That there was no half and half.

Now they are being ‘told’ that someone who has not accepted can probably sell at a higher price later.

They are also being told that a partly owned Qantas would be stripped of cash and loaded up with debt; with a board required to act as part of a bigger APA group.

That might seem an encouragement to sell; it could also be an encouragement to stay a shareholder.

The first exception to APA not going to 100%, is if Qantas does so well, that it can be ‘refloated’ from a 70-80% partly owned base.

While that would mean that no, there was no higher second offer, continuing Qantas shareholders would just have an even higher normal price in the market.

And the other exception? If APA is not around to make a second offer. Or is financially incapable of doing so.

Which does not necessarily mean that continuing Qantas shareholders would be as bruised. Qantas is no Ansett and there is no way it will become one.

APA’S ‘body language’ yesterday was quite bizarre. The bidder spent four pages detailing all these threats that could rip Qantas apart……..while desperately pleading to be allowed to spend $11 billion to buy them.

Indeed while not stating explicitly that it was prepared to spend even more.

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Report by The Moe