Outcome of Qantas bid Up in the Air

The outcome of the controversial A$11.1bn ($9.2bn) bid to take Qantas private was in the balance on Monday night after it emerged that acceptances by institutions had fallen just days before the offer expires.

Airline Partners Australia, the private equity-dominated bidding consortium, said on Monday that provisional acceptances by institutions to its A$5.45 a share recommended cash offer had dropped to just below 13 per cent by last Friday, down from 15.3 per cent.

Total acceptances were 25.51 per cent, well short of the 70 per cent minimum required by this Friday's deadline, and down from the 27.8 per cent achieved a week earlier and from the peak of just more than 30 per cent recorded in late March.

"The feeling in the market seems to be that [the consortium] will still scrape over the line," said a Sydney-based analyst. "But it wouldn't be a surprise if it didn't. It does appear to have lost some momentum."

APA, which includes Macquarie Bank, Sydney-based Allco and David Bonderman's Texas Pacific Group, said it was usual for institutions to wait until the last week before accepting offers.

"Despite public comments by one or two vocal shareholders, a clear majority of Qantas shareholders [by number] want the offer to succeed," said Bob Mansfield, the Australian business heavyweight and APA director hired as the consortium's public face. "If the offer fails, it is almost certain that the Qantas share price will fall," he added.

In spite of the drop in acceptances, however, Qantas shares rose 2 cents to A$5.34 on Monday.

The consortium, which unveiled its offer in December, has resisted pressure to lift its bid, in spite of a strong upturn in Qantas profits and the public airing of doubts about the takeover's success by two of Qantas's largest shareholders.

As well as concern about the selling price, local institutions have been lukewarm on the offer because they are shorter than usual of alternative stocks in which to reinvest. This is both because of the mergers and acquisitions boom as well as strong inflows into local pension funds.

But the consortium's determined stance is in contrast to several other private equity bidders for local targets which have had to raise their opening offers or admit defeat early on.

Nevertheless, in its bid to succeed, the consortium has been forced to water down its conditions, notably the reduction of minimum acceptances from 90 to 70 per cent, and to extend the closing date by almost two months to May 4.

If it reaches 50 per cent by Friday, then, under Australian takeover provisions, the offer will automatically be extended for 14 days to give remaining investors the chance to accept and avoid becoming minority shareholders.

Hedge funds are set to be crucial: they are believed to hold more than 40 per cent of Qantas' stock.

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