Qantas rivals hit new highs……..while…………….

A report by Scott Rochfort and Jacob Saulwick in the Sydney Morning Herald and The Age sasy that a sharp rise in the value of Qantas’s domestic and regional rivals has cast further doubts over the $11.1 billion takeover bid for the national carrier.

While Airline Partners Australia reiterated on the weekend that its $5.45-a-share bid for Qantas was “full, fair and reasonable”, airline shares in the Asia Pacific region hit new highs yesterday.

The takeover is now evenly poised as sources close to APA concede the deal could go down to the last stride after investors began rescinding acceptances last week, with the consortium yesterday failing to provide any hints whether acceptances had risen since it tried to force investors’ hands over the weekend by declaring the May 4 deadline final as acceptances dipped twice last week to 27.5%.

Qantas is under pressure to issue its fourth profit upgrade since it was approached by the private equity consortium last November, adding ammunition to claims by Balanced Equity and UBS Global Asset Management that the bid undervalues Qantas.

There is speculation APA wants to wrap up the deal quickly before Qantas is again forced to update its profit outlook, which has been bolstered by the airline’s record passenger loads and the higher dollar.

Qantas shares closed steady at $5.37 and have now risen 28% since rumours of the private equity bid first surfaced in November, but in comparison, Virgin Blue has risen 48% during the same period while Air New Zealand shares have doubled, hitting a four-year high of $2.43 on the ASX yesterday.

In addition, the share price of Qantas’s main international rival, Singapore Airlines, hit a seven-year high yesterday.

APA only needs to gain 50% acceptances by May 4, when it is given another fortnight to gain its 70% minimum acceptance condition and many analysts remain optimistic the deal will go ahead, despite rivals leapfrogging Qantas share price gains in the past five months.

BBY analyst Fabian Babich said he believed the bid had a 90% chance of success, adding, “Most people would expect them to get more than 70%.”

Meanwhile, other analysts argued it was more appropriate to compare Qantas to its peers on a share-price to book-value basis, which is the sharemarket value of the airline compared to its net tangible asset value and on this basis, Qantas was worth a relatively modest 1.75 times its last recorded book value despite the takeover offer.

This compared to Singapore Air’s 1.62, Air New Zealand’s 1.74, Virgin Blue’s 4.63 and Cathay Pacific’s 1.88.

The Federal Government meanwhile said it had no plans to review the bid a second time, after APA revealed this month it planned to gouge $4.5 billion out of Qantas by way of the dividend and capital return.

There are also concerns APA’s plans to load $2.1 billion of extra debt on Qantas’s balance sheet could destabilise the airline and when asked if he had concerns about APA’s plans to strip $4.5 billion from the national carrier, Federal Treasurer Peter Costello said, “What I want to see is whoever owns the shares, and it will have to be majority Australian ownership of shares, that they run a service which is in the interests of the travelling public.”  “That’s why I’ve got assurances from the proposed bidders and we will hold them to it.”  Adding, “Bear that in mind, we will hold them to it.”

However, it appears the takeover has already breached one rule, with foreign hedge funds and investors said to now hold more than 49% of Qantas. 

Report by The Mole from The Sydney Morning Herald and The Age