Mole Poll results and APA Qantas deal could fail
This week’s Mole Poll shows that 100% of TravelMole subscriber poll respondents, think that Qantas shareholders should not sell their shares to APA.
This result follows the failure of the $1.6 billion private equity bid for Flight Centre which sends interesting signals about what conventional institutional investors think of private equity deals of this nature and also that the APA bid for Qantas could fail.
Lazard Asset Management defeated the Flight Centre buy out by Pacific Equity Partners and Flight Centre’s founders and this is the first time in the Australian market that a recommended bid by private equity has been blocked.
It also may not be the last with the $370 million bid by Archer Capital for Rebel Sport under threat, unless the offer is increased, with as Skroo Turner did in the case of Flight Centre, Gerry Harvey, who owns 53% of Rebel endorsing the bid to apparently little effect.
With regulatory hurdles pretty well cleared except for the takeover panel and a couple of others, the real hurdle is yet to come and that is convincing institutional and small investors that they should sell at the offer price, allowing the syndicate to reap the mass rewards, ostensibly selling the company, probably to the same investors at potentially a higher price in a few years time, which APA has said it will be doing with their commitment only for five years.
It appears therefore that an institutional backlash against private equity is growing with the private equity model required to generate a 20%+ – yes I said 20%+ internal rate of return, with the syndicate intending to buy shares from institutions and ordinary shareholders at one price that they have already offered and then selling them back, essentially to those same investors, at a far higher price in a few years.
What is different in the case of Qantas is that generally private equity takes a company and improves it, selling the company in better condition than when it bought it, but, hang on, Qantas is highly profitable and very well run, with little room for improvement, except for off-shoring jobs, reducing costs and moving more of the Qantas’ business into the low cost Jetstar model, which is believed to be what APA really want.
The institutions that are holding out say that private equity should pay more Qantas and thatthe syndicate should be satisfied with much less than their 20%+ plus return enabling the current shareholders to reap some of the rewards – likely to happen, I think not!
Report by The Mole
John Alwyn-Jones
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