Another week closer to the ending of the $11.1 billion bid for Qantas and we are no closer to knowing its fate.
Big shareholders in Balanced Equity and UBS Asset Management are not happy and don’t seem to have changed their opinion that the bid is too cheap.
It is a stand-off in which the majority of shareholders could lose out on a high price. If that happens who will be to blame: the hold out shareholders, Qantas, its management or the bidding group?
I reckon you can book Qantas and its management on this one, and throw in the buyout consortium for a small share of blame.
It’s no wonder Qantas and the takeover bid have credibility problems: call it the ‘chicken little factor’ if you like.
At every opportunity the airline, its board and management warn of ‘impending doom’ if there’s a new competitor, if fuel costs go up, if governments change regulators or if employees ask for more money.
It’s earned this reputation especially under current CEO, Geoff Dixon, who seems to believe there’s not a silver lining anywhere to be found.
But the airline has weathered terrorism, SARS, high fuel prices, slowdowns and everything else.
Earnings are recovering from the low year in 2005-06, staff numbers have been cut after several years of lifting employee numbers, costs are being cut and the airline remains highly protected on a couple of key routes.
Passenger numbers are rising, especially on Jetstar domestically and internationally, while even the allegedly high cost mainline international business has lifted its game.
Dixon and other senior managers are involved in the $11.1 billion dollar buyout and that’s where there’s an intersection of the airline and management’s reputation for decrying everything, and the suspicion other investments banks and advisers have in the Macquarie Bank-led consortium making the bid as Australian Airline Partners.
Take the latest addition to Qantas’ ranks of competitors: Qatar Airways of the Middle East.
It is going to start to operate up to double daily services to Australia and what does Qantas say: claims this reinforces the need for Qantas to continue to restructure and lower its cost base.
CEO, Geoff Dixon said in a statement on Friday that the airline would be competing with three government-owned Middle Eastern carriers – Qatar, Emirates and Etihad – on routes between Australia and the UK and Europe.
“Around 20 airlines currently already fly these routes over a range of hubs, and with yet more capacity coming into the market, Qantas will have no option but to achieve further cost savings if it is to remain competitive,” Mr Dixon said.
“This is something that some unions, who have been calling for further guarantees in relation to the Airline Partners Australia bid for Qantas, need to realise.
“The reality is that whatever its ownership structure, Qantas must change, and will continue to change, to ensure it remains successful.”
A clarion call to arms and man the decks and slash the costs line in the accounts.
But unfortunately for him and the airline claims of “more capacity” is not strictly accurate.
Qatar is not increasing capacity into Melbourne. It is filling the gas that was left by the withdrawal of Austrian Airlines and British Airways from Melbourne.
So the arrival of Qatar was used by Dixon to score some points against the silly campaign by unions for job guarantees from the new prospective owners: something they don’t have now.
But by using this Qatar decision to bash the unions, Dixon gave their absurd claims a bit more publicity and oxygen and highlighted again concerns some people have about the buyout.
Acceptances are continuing to flow under the offer: by last Friday they were equal to 18.17 per cent, or 360.6 million shares.
You’d think someone from APA would have told Dixon to put a sock in it, especially as it was his first public comment since the interim results a month ago.
Investment bank, JPMorgan, added fuel to the fire from the bid side with a claim that it believes the airline’s share price would be trading above the offer price of $5.60 (effectively $5.45 with the final dividend).
The firm told clients on Friday that it now valued the airline at $5.68 a share and added that it had ‘enormous upside risk’ to its earnings because of the buoyant nature of trading conditions at the moment. Those were shown in the passenger and revenue figures out last week.
The statement in last week’s profit update (a profit before tax for 2007 around 40 per cent above last year’s) said “Qantas is aware that there is a broad range of analyst PBT estimates for the year ended 30 June 2008 ranging from approximately $975m to approximately $1.5bn with an average of approximately $1.23bn.
“In response to market speculation and queries received from investors, Qantas confirms its outlook expectations for 2008 are in line with average analyst consensus PBT estimates of approximately $1.23bn.”
That will be a doubling in earnings in two years. And even though Qantas had tried to downplay the figure by qualifying and hedging it with various factors, analysts dismissed that.
More than anything analysts are wary of the involvement of management in the airline’s business and in the bid at the moment.
The January traffic figures showed Qantas had filled its highest percentage of seats since its 1995 public listing. It filled 82.7 per cent of its seats, up on its 76 per cent long-term average.
The February figures won’t be out before the APA offer for Qantas closes on April 3.
Qantas shares rose 2c to $5.14. Volume was a low 12.98 million shares. That was the smallest volume last week when well over 223 million shares were traded.
And finally APA should take some of the blame. They have given themselves no leeway and no wriggle room in which to do a deal: by ruling the bi
