Move to break Qantas sale impasse fails

A report in The Financial Review today says that a group of hedge funds has failed in an attempt to break the impasse over the $11.1 billion Qantas Airways takeover after the airline’s biggest shareholders knocked back two offers for their stakes.

The Australian Financial Review understands the group of funds tried on two occasions late last week to convince UBS Global Asset Management and Balanced Equity Management to sell their stakes in the airline on the open sharemarket and it is understood the fund managers, which have told the Qantas board that the takeover offer at $5.45 a share from the Airline Partners Australia private equity consortium is not high enough, rejected both approaches.

AFR Broking sources said the consortium of four hedge funds had tried through two separate brokers to buy the stock, once at $5.35 a share and once at a higher level, but had not offered more than the amount tabled under the takeover offer.

UBS Global Asset Management owns about 6% of Qantas stock and Balanced Equity owns about 4 per cent, meaning together they have a near 10% stake – the amount needed to prevent Airline Partners achieving the 90% needed to compulsorily acquire all Qantas’s shares.

Airline Partners, a consortium of Allco Finance Group, Allco Equity Partners, Macquarie Bank, Texas Pacific Group of the US and Canada’s Onex Corp, also need to reach 90% to lock in the $11 billion debt package it will use to fund the deal.

Both UBS Global Asset Management and Balanced Equity have privately told Qantas chairman Margaret Jackson that the airline should release a forecast for the 2007-08 financial year to back up the board’s December 14 decision to accept the takeover and with Ms Jackson returning from a trip overseas tomorrow, while Qantas chief executive Geoff Dixon and chief financial officer Peter Gregg are in the US visiting Texas Pacific.

Qantas has issued two upgrades to its 2006-07 earnings forecast since admitting on November 22 that reports in The AFR saying it was talking to Macquarie and Texas Pacific were true.

The airline expects an increase in net profit over 2005-06 of as much as 40% per cent, to $672 million, while broker consensus for 2007-08 profit is $883 million, says Bloomberg.

Qantas yesterday released strong operating statistics for January, posting a 3.3 percentage point increase in its revenue seat factor – a measure of how many seats on average contain full fare-paying passengers – to 83.7%.

A strong increase in international loads underpinned the improvement, which helped contribute to an 8.5% increase in yields for the financial year to date.

It comes as concern about whether the deal can succeed caused volatility in trading in Qantas shares. The stock suffered its third straight day of losses yesterday, shedding 8c to close at $5.16 a share, its lowest since the federal government approved the potential takeover last Tuesday.

The share price is a 3.5% discount to the official offer price of $5.60 a share, minus a 15c special dividend Qantas will pay if the deal succeeds in lieu of its interim dividend.

Qantas said yesterday it had increased its level of hedging for the 2007-08 financial year to 50% of its crude oil requirements at a “worst case rate” of $US69.64 a barrel.

Report by The Mole with material from The Australian Financial Review.