The $11 billion takeover bid for Qantas has won a tick the Federal Government, but there’s no sign of any extra competition being allowed by the Federal Government on some key routes, such as across the Pacific.
Federal Treasurer Peter Costello revealed the approval, and a set of ‘enforceable undertakings agreed to with the bidder, Airline Partners Australia, in a statement and then press conference in Canberra yesterday evening.
The enforceable guidelines are much like those the ACCC and ASIC reach with people they are dealing with in corporate and competition matters.
The Treasurer said it was now up to the airline’s shareholders whether they accepted the $5.60 a share bid from Airline Partners Australia.
Qantas shares closed at $5.21 yesterday, up a cent.
Several big shareholders, including an investment arm of UBS, are said to be unhappy at the price on offer but whether they will vote against it is another thing, given the instability in markets at the moment.
The recent fall in markets of more than four per cent will mean big shareholders are more encouraged to accept because they can invest in stocks they think have been ignored or sold off too far.
The more the instability continues the more likely value (such as the banks, according to some brokers), will appear to tempt them to switch their Qantas cash.
Mr Costello said the decision by the Government not to oppose the bid was made after receiving a report from the Foreign Investment Review Board and legally enforceable promises made by Qantas to the Government.
He said Qantas promised that:
It will stay majority Australian-owned; it will not be foreign controlled;the majority of its directors will be Australian citizens;the airline will remain based in Australia and it will continue its frequent flyer program with no loss of points.
He said the promises were legally enforceable. These are commitments already made by APA, so nothing new there.
At a later press conference Mr Costello said that if the government claimed there was a breach of the agreement band it went to court to seek a remedy, APA and Qantas could not oppose that move.
The consortium is made up of Macquarie Bank, Allco Finance Group, Allco Equity Partners, Texas Pacific Group and Onex Partners.
It says it will spend $10 billion over the next five years to upgrade the fleet, including buying more than 70 planes to increase capacity by 40 per cent.
Foreign shareholders currently own about 46 per cent of Qantas and if the buyout succeeds, the foreign shareholding will rise to a nominal 49 per cent with a claimed voting interest of about 39 per cent.
Here’s the Treasurer’s statement:
Airline Partners Australia (APA) notified an application in respect of Qantas Airways Ltd under the Foreign Acquisition and Takeovers Act 1975 (FATA) on 5 February 2007 and subsequently clarified its proposal on 7 February 2007. The Foreign Investment Review Board undertook a detailed examination and wide consultation prior to advising me of its findings.
If the proposal as notified is implemented in the manner described, Qantas Airways will retain its majority Australian ownership and control. The Government intends to monitor the ongoing implementation of the proposal for continued compliance with regulatory requirements.
The Minister for Transport and Regional Services and I have negotiated and received a legally enforceable Deed from APA. The Deed has been provided voluntarily by APA and does not involve any commitments from the Commonwealth. In the event of a possible breach, the Commonwealth will be able to have the Deed enforced. The Deed will apply until APA no longer has a controlling interest in Qantas under the Corporations Act 2001 or has sold all, or substantially all, of its airline business.
Primarily the Deed:
· restates in a legally enforceable document APA’s public commitments, including undertakings that:
o Qantas and Jetstar Airways will expand internationally and within Australia to provide a sustainable mix of full service and value based offerings in line with market needs;
o the Qantas Group will offer an integrated network of international, domestic and regional air transport services;
o the Qantas Group will support regional capacity growth and regional network improvement in line with market needs; and
o Qantas customers will continue to have access to a competitive loyalty program and the Transaction will not result in any loss of frequent flyer points for members of the Qantas Frequent Flyer Program.
· supports the Qantas Sale Act 1992 (QSA) and Airports Act 1996 (AA);
· facilitates monitoring of Qantas ownership and its compliance with the QSA and AA, and Australia’s foreign investment policy through the inclusion of information provision obligations on APA; and
· Acknowledges the Commonwealth’s right to seek remedy in the event of a possible breach, including through an injunction or specific performance.
In these circumstances I have decided to raise no objection to the application under FATA or the Government’s foreign investment policy.
But not a word about greater competition or a question from the Canberra press gallery on that issue. Qantas is still protected on the Pacific from the likes of Singapore Airlines.
