Qantas Accepts $8.64B Takeover Offer

Qantas Airways said Thursday it had accepted an 11.1 billion Australian dollar ($8.64 billion) takeover offer from a private equity consortium including Australia's Macquarie Bank and the Texas Pacific Group - one of the biggest corporate buyouts in Australian history.

Qantas Chairman Margaret Jackson said the board had unanimously agreed to recommend to shareholders that they accept the offer of A$5.60 ($4.40) a share from the consortium, removing the national carrier from the stock market 11 years after it was sold by the Australian government.

The announcement follows Qantas' rejection on Wednesday of the group's offer of A$5.50 a share.

"It is a very momentous and exciting day for Qantas," Jackson told a media briefing after securing the improved deal from the consortium, which includes Australia's largest investment bank, Macquarie, and buyout giant Texas Pacific Group, a long-term investor in the U.S. aviation sector.

In addition to the better price, Jackson said the new offer included fewer conditions and the removal of a break fee payable to the consortium if shareholders or government regulators fail to approve the deal.

"We ended the day with a price that was compelling, no break fee and conditions that we can live with," she said.

Jackson said the consortium's bid reflected the airline's true value, and was 33 percent higher than Qantas shares were trading at before takeover speculation began in early November.

"The directors believe this offer allows Qantas shareholders to realize significant value for their shares that has not been fully recognized in the public market," Jackson said.

After a brief trading halt Thursday, the airline's stock finished 3.7 percent higher at A$5.28. If shareholders approve the deal, the shares will stop trading and be removed from the market.

The 86-year-old airline has remained one of the few profitable global carriers in recent years, amid soaring oil prices and concerns about terrorism in the wake of the Sept. 11, 2001, attacks and health fears spurred by outbreaks of SARS and bird flu.

The offer must now be approved by Australia's corporate regulators, Australian Competition and Consumer Commission and the Foreign Investment Review Board, as well as 90 percent of Qantas shareholders.

If approved, it will represent one of Australia's largest corporate takeovers after the 2001 purchase by Singapore Telecommunications, or SingTel, of telecommunications company Optus for about A$14 billion.

Jackson said the deal would leave the iconic airline, easily identified by its red and white kangaroo logo, in Australian hands - a move likely to improve its chances of winning government approval.

Australian law limits foreign-ownership of Qantas at 49 percent, with each overseas individual allowed to hold a maximum 25 percent of shares.

The consortium, called Airline Partners Australia, said it plans to stay within those restrictions. Australian finance company Allco is the biggest player in the group through Allco Equity Partners, which has 35 percent of voting rights, and Allco Finance Group, with 11 percent. Macquarie has around 15 percent.

Total foreign investors would hold less than 40 percent, including Fort Worth-based Texas Pacific Group with less than 15 percent, Canada's Onex Corp. with 9 percent and unnamed other foreign investment funds each holding less than 15 percent.

Prime Minister John Howard said his government will keep an eye on the takeover to ensure it meets the foreign-ownership caps, set as part of the 1995 privatization of the Sydney-based airline.

"We are going to watch it, but we are not going to take sides," he told the Australian Broadcasting Corp. radio. "It is a matter for the shareholders, but the laws will need to be complied with to the full."

He said Australian laws would not be changed to accommodate the takeover, which he hoped was in the airline's best interest.

"I hope the Qantas we know is the Qantas we keep," he said. "People like Qantas, it's an icon."

Bob Mansfield, the director Airline Partners Australia, said the consortium supported Qantas' existing management and its plans for large capital expenditure, including plans to invest more than A$10 billion ($7.87 billion) over the next five years and buy more than 70 new aircraft.

"Qantas would retain the current Australian management and their growth strategy, a strategy that does not involve a break up of the airline, cuts to regional services or the movement of maintenance operations offshore," Mansfield said.

Some analysts have predicted Howard's populist conservative government may try to use Qantas' iconic status to block the takeover. But the fact that Qantas will remain majority-Australian owned diminishes Treasurer Peter Costello's ability to use his "national interest" powers to block the sale, as he did with Royal Dutch Shell's A$10 billion bid for Australian energy giant Woodside Petroleum Ltd. in 2001.

"The government is likely to be a bit nervous, but they will be reluctant to stop it given the message that sends to offshore investors," said Jason Bloom, an analyst at Deutsche Bank. "With the federal election coming up, there will be some pretty strong comments coming out of union groups, from consumer groups, so I am sure they will take it pretty seriously."

The Australian Council of Trade Unions has already warned that the consortium may slash jobs and reduce wages if it wins control of Qantas, one of Australia's biggest employers with a 37,000-strong work force.

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On the Net:

http://www.qantas.com.au

http://www.asx.com.au


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