What is Qantas hiding………………?

A report in the Australian Financial Review says that Qantas Airways has refused to give in to demands to reveal its earnings forecasts for next year, despite its shares tumbling yesterday amid fears rebel shareholders will block the $11.1 billion private equity buy-out.

Qantas shares fell 7c to $5.09, a near 7% discount to the $5.45 bid price and their lowest since December 13, the day before the board recommended shareholders accept the offer from Airline Partners Australia.

The stock fell as low as $5.04 during the day’s trading after The Australian Financial Review reported rebel shareholder UBS Global Asset Management had knocked back two offers from hedge fund consortiums wanting to buy its stock.

UBS Global Asset Management owns about 6% of Qantas and has told Qantas’s board privately it won’t accept the takeover offer from Airline Partners unless it can provide a forecast for 2007-08 earnings proving the bid does not undervalue the airline.

It’s now understood one of the offers the fund manager rejected from the hedge funds was at $5.60 a share – 15% above the Airline Partners offer price.

A spokesman for Qantas chairman Margaret Jackson told the AFR last night Ms Jackson was aware of the demands to reveal forecasts and the growing perception the buy-out might not succeed, but had “nothing further to add at this stage”.

Airline Partners director Bob Mansfield said he remained “optimistic but not relaxed” about the takeover succeeding, amid the resistance from UBS Global Asset Management and Balanced Equity Management, which owns about 4% of Qantas stock.

“There’s a total focus on two shareholders when a lot of the other tens of thousands are accepting the bid,” Mr Mansfield said.

“And there’s a hell of a lot of hedge fund activity which complicates the ability to really know where things are at.”

He reiterated that Airline Partners had no intention of adjusting its offer, adding, “We have said we can’t increase the bid; we are not going to increase the bid and we are not going to end the bid and start a new one”.  “So those two shareholders are very clear about where we stand.”

Combined, the two funds could block the Airline Partners offer, which is conditional on getting acceptance for 90% of Qantas stock, compared with 15.3% currently committed at the latest notice.

Deutsche Bank transport analyst Jason Bloom said more people were beginning to think the shareholders would block the Qantas deal after Lazard Asset Management blocked a management buy-out of Flight Centre earlier this month, adding, “Clearly the odds are getting a bit tighter on it succeeding”

“My gut feel is still that it will get across the line, but we’ve seen other bids fail and it looks like the institutions are taking a deeper look at these things and are willing to block them.”

JPMorgan transport analyst Matt Crowe said pressure had grown for Qantas to give an indication of its earnings expectations for 2007-08 after it released figures this week showing yield (or seat-by-seat profitability) growth of 8.5% for 2006-07 to date. Mr Crowe said this growth was worth more than $100 million to Qantas’s pretax profit and could continue into 2007-08.

Qantas has already upped its earnings forecasts twice since it admitted to having talks with Airline Partners on November 22, and now expects an increase in net profit this financial year of as much as 40% to as much as $672 million.

Broker consensus for 2007-08 is for $883 million, according to Bloomberg.

Report by The Mole with material from the Australian Financial Review