Shareholders Decide Fate of Qantas Deal

SYDNEY, Australia -- Shareholders on Friday chose whether to scuttle a 10.8 billion Australian dollar ($8.9 billion) bid to buy Australia's Qantas Airways, approve it, or keep it alive for two more weeks.

But the fate of the deal - which would be Australia's biggest corporate takeover in six years if it succeeds - was not immediately known, as the bidders tally the number of acceptances of their A$5.45-a-share offer.

The bidders said they would announce the result before Australian markets open on Monday.

Most analysts expected Airline Partners Australia, a private equity group led by Australia's Macquarie Bank and Forth Worth-based Texas Pacific Group, would secure the minimum 50 percent of Qantas shares it needed by 7 p.m. Friday (5 a.m. EDT) to trigger a two-week extension of its bid.

If APA did not secure at least 50 percent, the bid failed. If APA received more than 70 percent acceptances, the bid's finance package kicks in and the deal would go ahead.

APA made no comment immediately after the deadline passed. In a note to the stock exchange earlier Friday, APA said its stake in Qantas had increased to more than 36 percent by the end of Thursday - leaving the bidders needing a last-minute surge of acceptances.

David Coe, a director of the private group seeking to buy out the iconic airline known as the Flying Kangaroo, said before the deadline that the deal remained "on a knife edge."

He warned hedge funds holding chunks of the company against trying to maximize their profits on the deal by gambling that others would push it across the line.

"We want them to stop sitting on their hands and not shoot themselves in the foot," Coe was quoted as saying in Friday's The Australian Financial Review newspaper.

Shareholders may be holding back in the hope that if APA reaches its 50 percent target, it will increase its offer to reach the 70 percent stage. Others may be waiting for an entirely new bid, analysts said.

"I'm sure it has been frustrating for the consortium," Kim Ivey, managing director of Vertex Capital Management, told Australian Broadcasting Corp. radio. "If they don't get the 50 percent by 7 o'clock today, this deal is off.

"But that does not mean that the consortium will go away. They may come back with a better deal."

Qantas stock edged almost 2 percent higher Friday but still closed lower than the bid price at 5.38 Australian dollars..

The bid's passage to the Friday deadline was rocky. It faces strong opposition from labor unions and others who fear Qantas, formerly a government-owned company, could be broken up or its ownership taken overseas - something barred by law.

Prime Minister John Howard's government gave the bid the go-ahead after regulators found it did not breach foreign investment laws or specific legislation that aims to keep Qantas an Australian company.

The bid has also been controversial because its structure adds a massive debt load to the company while earning board members and takeover partners such as Macquarie huge fees. Moody's Investor Services has warned that Qantas' Baa1 credit rating could be downgraded several notches to Ba3 if the takeover proceeds.

The group plans to raise up to A$7.5 billion ($6.2 billion) in debt and A$3.5 billion ($2.9 billion) in equity to fund the acquisition, then use its controlling stake to return about A$4 billion ($3.3 billion) in capital to shareholders within 12 months and burden Qantas with more debt.

Some key stakeholders said APA's bid undervalues Qantas - one of few international airlines making good money that has twice in recent months upgraded its profit forecasts - and scuttled APA's initial hopes of securing 90 percent of the company with its offer.

Full control remains APA's ultimate goal, and analysts believe it will launch an intense campaign to mop up the remaining shares if it reaches its 70 percent ownership target.

To date, the 2001 buyout of telecommunications company Optus by Singapore Telecommunications, or SingTel, for about A$14 billion is considered Australia's biggest corporate takeover. But the size of the Qantas deal could be overshadowed by plans by retailer Coles Group for the full sale or breakup of the A$19 billion ($15.66 billion) company.

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