Sisson in the eye of two storms

A report by Michael West in The Australian this morning says that when Andrew Sisson faxed off a note to Qantas last Friday, casually informing them he wouldn’t be accepting the takeover bid, he was under no delusions as to the storm that would erupt.

The founder of Balanced Equity Management, in Sydney yesterday as an expert witness in the Citigroup insider trading case alongside the other recalcitrant Qantas shareholder, Paul Fiani from UBS, is staring down an $11 billion takeover bid for the national icon by the powerful Macquarie Bank consortium, with hundreds of millions of dollars in fees, and some of the nation’s most resplendent corporate egos, on the line.

Paul Fiani, speaking for 6% of the airline, had already flagged his intention to hold out and Sisson, with his 3.6%, could all but thwart the bid and he did, together their 10% blocking the bid which now hangs in the balance.

A tongue-lashing from US hedge funds and yet another wave of heavy selling ensued, with Sisson telling a confidant who told the Australian he expected more pressure and “There’ll be two lines of attack,” “Moves to personally discredit him and accusations he’s trading his own book.”  “He’s ready for it.”  

With such hostilities de rigueur during big takeover battles as players look to rattle their opponents in the press, there hasn’t been a whimper so far, with Sisson’s integrity  beyond dispute, say those who know him.

A rival fund manager told The Australian, he is “As close to white as they come,” adding, “He takes his fiduciary duty very, very seriously.”

The second claim of “trading his own book” has had tongues wagging, with Sisson was unavailable to respond and hardly likely disclose his hand in any case, but some believe he may have written call options and other exotics over his Qantas shares, capping his downside.  In other words, Andrew Sisson may have little to lose by knocking back the bid, thanks to some form of derivative protection over his Qantas shares. Were this the case and the bid lapsed, Qantas shares would fall, but Balanced Equity would not make a loss.

His upside could be to force the hand of Australian Airline Partners to come back with a higher offer, or elicit an approach from anxious hedge fund managers who could pitch a higher offer for his stake alone to ensure the bid succeeded. There has already been such an approach.

“Unlikely,” said one associate of the derivatives angle. “Possible,” said another who was au fait with Sisson’s modus operandi, adding, “He’s big in derivatives, always writing puts and calls” and “He’s as savvy (in derivatives) as anyone in the market”.

Hitherto respected by his peers but largely unknown outside the rarefied world of wholesale funds management, Sisson presides over a $12 billion portfolio focusing on quant trading the Top 50 stocks, with the Balanced Equity business thought to be worth $300 million, despite having just 10 staff, and probably a pre-tax profit north of $20 million a year, with Sisson owning 60%.

Sisson lashed out at Qantas board and management last Friday for withholding information and even “not living up to the intent (of the law)”.

The result? A significant upgrade in earnings followed, but he’s no shareholder activist and as he responded, cryptically, to a question in court yesterday: “Not everyone looks at bids the same way that we do.”

Nevertheless the future of APA and Qantas may well be in Sisson and Fini’s  hands with some analysts in both the financial and aviation world saying thank goodness that it is!

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Report by The Mole from The Australian