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At last some straight talking from Qantas management, shorn of most of the hyperbole of the past three years about threats and dangers to the company’s future.

Gone were the chicken little ‘the sky is falling’ alarms about costs, oil prices, foreign airlines, terrorism, SARS and you name it.

In their place we have what appears to have been the basis of a fairly rational, level-headed assessment of where the airline stood after the APA bid debacle and the now derisory $5.45 a share offer.

Instead of meeting the predictions of a rattled chairman in Margaret Jackson, who as late as this week was wondering when the share price would fall, the shares hit record levels.

After withstanding the sale of hundreds of millions of shares by hedge funds and other speculators (more than 750 million in almost three weeks), the QAN share price broke free this week, rising gently and then accelerating yesterday to its highest level ever on the back of the briefing by the airline’s management to major shareholders.

The shares jumped past the $5.45 of the APA offer to climb to $5.54 and close at $5.46, up 4 on 114 million shares.

That’s $5.54 price is actually higher than the first offer price of $5.60 from APA which was made before the final 15c a share dividend was struck.

APA took that dividend away (which could have cost them the bid) and cut the price to $5.45. The effective price yesterday based on yesterday’s close was $5.69.

That’s a firm rejection of the APA offer and the board and management’s active support of it.

It confirmed the opposition to the bid from the likes of Balanced Equity Management and the now departed head of UBS Asset Management. Their investors in Qantas are all a little richer now for the opposition, as is the Qantas management group, although not as rich as the pot of gold promised to them by the APA offer.

Yesterday’s briefing backed up the comments from CEO, Geoff Dixon this week to staff about the airline being in a ‘sweet spot’.

A 17 page presentation formed the basis of the ‘making up’ briefing with big shareholders in Sydney, many of whom had sold early and were now buying back in, forced to by the bid failure and their slow realisation that the airline’s share price was going to rise.

It was a rare burst of unvarnished commentary from the CEO which clearly confirmed the healthy state Qantas now finds itself in, and how close it came to being ‘stolen’ by the APA offer of $5.45 a share.

Think of the briefing yesterday in another way: think of it as the first major update from management for the members of the new APA dominated board, had that New York hedge fund not botched its acceptance of the offer.

That management group included CEO Dixon, his number two the airline’s Chief Financial Officer, Peter Gregg and other senior managers.

Think of Mr Dixon using the same briefing notes and presentation, as released yesterday, to tell APA just what a bargain they managed to snare and how much comfort the news would be to the banks which financed it.

In fact shareholders would be entitled to ask why wasn’t this document, or something like it, included in the Target statement in the APA bid?

As you will see below for instance the presentation reveals a review of the Frequent Flyer program has been going on since last year. That wasn’t highlighted in the statement and now it seems to be a big part of the revamp.

Of course minority shareholders who had held out against the offer, would not have been involved or probably informed of the detail in this update, had APA won.

Yesterday Dixon used the word “favourable,” rather than the phrase, ‘sweet spot’ to describe where the airline finds itself at the moment and into the immediate future.

“We think we can handle most of what’s coming at us,” he was quoted as telling analysts and investors in Sydney yesterday.

He said the airline is benefiting from rising ticket sales and a “strong” domestic and global economy and “these favourable conditions should last for the next 12 to 18 months”.

Analysts at UBS, Macquarie Bank, JP Morgan, Goldman Sachs JBWere and other leading firms have this week upgraded their ratings on Qantas shares to “buy” from “hold,” or are about to release new recommendations, probably later today after they assess yesterday’s briefing.

There was no mention of a new profit upgrade yesterday. Qantas has already increased its earnings forecast twice after the board endorsed the buyout, saying pre-tax profit may almost double to $1.23 billion in 2008, from $671 million earned in 2006.

Analysts said Dixon told the meeting Qantas didn’t see the need to upgrade its forecast for the current financial year to June.

Among the points made in the briefing were:

The Qantas board will consider returning capital to shareholders through a special dividend payment, a share buy-back or splitting the company (demerger was used in the graphic).

Analysts said there was no elaboration of what was probably the most important part of the meeting: more details of possible options after that long board meeting last Thursday which saw Ms Jackson announce her departure and that of Mr James Packer as a director. These will happen at the annual meeting in November. The briefing again emphasised that the APA plans for Qantas would be followed.

APA had planned to increase Qantas’ debt to return $4 billion to shareholders within a year of taking control; Mr Dixon was reported as using a figure of $3.5 billion earlier this week and Merrill Lynch says it could be $2.2 billion.

Demerger could mean splitting off the freight business, Jetstar or selling the frequent flyer program, all of which were mentioned in the briefing presentation notes.

Qantas said it was “reviewing” the ownership of the 4.9 member loyalty program.

That could actually be revamped and returned

Coles Bid Steps Up

Well, Wesfarmers and its number crunching private equity partners go into the data room at Coles Myer today to begin due diligence on the floundering retail giant that will produce a bid well above $17.25 a share.

SP AusNet’s Alinta Interest

It’s not only AGL Energy that is sniffing around the possible break up of Alinta by either Babcock and Brown or Macquarie Bank.

SP AusNet says the Alinta assets its majority owner, Singapore Power, is interested in would be a good fit with SP AusNet’s business profile.

Singapore Power has previously said it is interested in regulated or contracted assets. It is in a bid with Babcock and Brown for Alinta that may or may not succeed, such is the complexity and at times confusion surrounding the deal.

SP AusNet managing director Nino Ficca said yesterday, “That is consistent with the sort of profile that SP AusNet has”.

He told a corporatefile Open Briefing on the ASX:

“We’ve established a Board committee to oversee an independent review process for the assessment of this opportunity. The process includes the appointment of independent advisors to assist in the review.

“The assets that may be acquired by Singapore Power and subsequently offered to us are consistent with our existing portfolio of energy transmission and distribution assets. As with any acquisition, we’ll assess the assets in terms of their capacity to increase value for our security holders.

“The opportunity to expand our operations outside the geographic boundaries of Victoria, as well as into gas transmission, is one we’ve been working on for some time.

“The assets are considered to be of the same high quality as our existing assets and are predominantly regulated.

“Should Singapore Power be successful in the bid, and we choose to acquire some or all of the assets, our funding requirements will be assessed at the appropriate time.”

AGL Energy said earlier this month that it will buy the remaining 67 per cent of the AlintaAGL retail business from Macquarie Bank Limited for a net consideration of $345 million, should Macquarie successfully acquire Alinta.

Under the agreement, AGL Sales, a wholly owned subsidiary company of AGL, will buy the remaining interest in AlintaAGL’s retail business, and will procure that AGL will sell its 33 per cent interest in AlintaAGL’s co-generation assets to Macquarie.

AGL is currently the beneficial owner of 33 per cent of AlintaAGL’s retail business, which comprises 566,000 gas customers and 1, 600 electricity customers.

AlintaAGL owns the Western Australian retail business formerly owned by Alinta as well as cogeneration assets at Alcoa’s Pinjarra and Wagerup alumina refining plants.

AlintaAGL was set up following the Alinta AGL merger and subsequent demerger six months ago. AGL Energy is also in talks with Babcock over the AlintaAGL venture. Under an agreement reached between Alinta and AGL in 2006, any change of control at Alinta allows AGL to trigger an option to move to 100 percent ownership of AlintaAGL.

SP AusNet last year missed out on Queensland gas distributor Allgas. It is still interested in the Bass Strait power link which has been put up for sale by its owner, National Grid.

SP AusNet said it earned an “attributable net profit” of $178.297 million for the year to 31 March, down from $367.555 million in the prior year. (These figures were reached after one-off items)

But the company said a more accurate net profit from continuing operations was $161.246 million, up 18 per cent.

SP AusNet listed on the ASX at the end of 2005, said that profit from continuing operations result beat its prospectus forecast by 3.2 per cent.

The bottom line result included $17.1 million of profits and income tax adjustments for the 2005-06 year.

The company is 51 per cent owned by Singapore Power.

It declared a final distribution to security holders of 5.635 cents, taking the total payout for the year to 11.27 per cent, representing a yield of 7.7 per cent.

Revenue for the year was $1.019 billion, up 38 per cent and 2.2 per cent above forecast, while earnings before interest and tax (EBIT) was in line with its forecast at $424.7 million.

That gives an EBIT margin of around 42c in the dollar. It’s no wonder they load the balance sheets of utility companies up with debt for big deals and major asset buys with gross margins like this.

It gives you a hint of the attraction Macquarie Bank and B&B see in Alinta.

SPN shares edged half a cent higher to $1.47.5, near the all time high since listing 18 months ago of $1.50.

Behind The Big Nickel Bidding War

No wonder Norilsk Nickel and Xstrata are fighting over LionOre Mining International; according to the international investment bank, Credit Suisse, world nickel prices could continue to rally and even reach $US65,000 a tonne this year.

World nickel prices have jumped 155 per cent over the past 12 months as stocks have fallen 75 per cent to equal around two days of global consumption.

There are 11 nickel mining projects being built around the world but only three including BHP Billiton’s late and over budget Ravensthorpe project in Western Australia, will start production before 2010.

The world price, which is essentially the LME price, closed Thursday at $US46,800 a tonne for three months metal, while the cash price ended at $US50,300, with stocks of the metal down to perhaps two days supply and not much more.

Nickel for immediate delivery rose to a record $US54,050 a metric ton in London on May 15.

May 18, 2007 - by Glenn Dyer

Qantas chairman, Margaret Jackson, has bowed to rising pressure and will retire at the annual meeting later this year, making her the first casualty of the failed $11.1 billion bid for the airline.

Coles Sales Bad, Bring On Sale

May 18, 2007 - by Glenn Dyer

For the moment we can add the sale of Coles Group to the list of life’s certainties: death and taxes.

Why The Mining Boom Will Last -2

But while exploration spending is at record levels, it has to find or prove up resources capable of being exploited in projects developed at existing operations or in new locations.

And that is the most impressive thing about the ABARE report.

The sheer health of the industry can be seen from the following two paragraphs.

“There are 43 projects (both advanced and less advanced) that are new to ABARE’s list since October 2006,” ABARE said..

“In the two year period from the end of April 2005 to the end of April 2007, over 166 projects have been added to ABARE’s project list.

“The number of newly listed projects in this timespan is unprecedented and is another indication of the current high level of investment interest in the mineral resources sector.

“Of the 43 projects added to the list, nine are either committed or already under construction.”

ABARE remarked that In line with previous project listings, the current investment intentions in the Australian mineral resources sector, as reflected in the large number and record value of minerals and energy projects committed to or under construction, “continue to bode well for the sector’s growth over the next few years.

“The 91 advanced projects as at April 2007 indicate continued expansion across most of the minerals and energy industry spectrum. Of the record 279 projects in ABARE’s April 2007 projects list, 67 per cent (188 projects) remain uncommitted.

“However, most of the projects that will ultimately proceed to development in the medium term are included in ABARE’s current list of 188 less advanced projects.”

The spending levels are at times mind boggling in their growth.

In 2004-05 around $10 billion was spent on new capital projects according to the Australian Bureau of Statistics and ABARE.

That jumped 80 per cent in 2005-06 to $18.6 billion, which according to the report was “more than double the average annual expenditure in real terms (2006-07 dollars) for the past 25 years.

“Surveys of industry intentions indicate the possibility of further increases to almost $23 billion in 2006-07 and over $30 billion in 2007-08.”

According to ABARE, if the capital expenditure in 2006-07 and 2007-08 is realised, this would represent increases of 22 per cent and 61 per cent respectively from the record expenditure in 2005-06.

“The expected continued high level of capital expenditure in the mining industry in the near future is consistent with the development trends shown in the full list of major mineral and energy projects.”

The metals industry is the only one to show a slowing in spending.

“Capital expenditure in the metals products sector, which includes the minerals processing activities covered in ABARE’s projects list, was $4.8 billion in 2005-06, 41 per cent above expenditure in 2004- 05.

“Paralleling the result in mining, real expenditure in the metal products sector in 2005-06 is the highest on record and more than double the 25 year annual average of $2.5 billion (in 2006-07 dollars).

“However, surveyed industry intentions suggest that metal products expenditure could fall in 2006-07 to about $4.1 billion and $3.2 billion in 2007-08.

“The possible decreases in metal products capital expenditure reflect the imminent completion of some large projects and the lack of commitment to any large metal processing projects in the past twelve months.”

Looking at the six months since the last report in October 2006, ABARE said that 23 major minerals and energy projects, with a total capital expenditure of $3.36 billion, were completed.

“The completion of these projects will result in increased production and export capacity for a range of commodities, including coal, natural gas, bauxite, base metals, gold, iron ore, mineral sands and nickel.

“The total number of projects completed in the six months ended April 2007 was one less than for the six months ended October 2006 and just below the record number (27) completed in the six months to April 2006.

“However, the total capital cost was significantly less than in the six months ended April 2006 and October 2006.

“The average value of projects completed in the six month period to April 2007 was $144 million, down from the historical nominal average over the past nine years of around $234 million.”

Looking ahead, ABARE’s list of projects suggests that the rate of project completions is likely to increase in the short term, with over 45 advanced projects scheduled for completion in the second half of 2007.

“However, there is the possibility that some of these projects will not meet announced scheduled completion dates or cost budgets, reflecting strong industry-wide competition for skilled labour and equipment.

“In addition, progress on a number of projects has been hampered by unfavourable weather conditions, particularly in Western Australia.”

At the end of April 2007, there were 91 projects at advanced stages of development included in ABARE’s projects list – these projects are either committed or under construction.

This was three fewer than the number of advanced projects included in the October 2006 list.

Despite the slight reduction in the number of advanced projects in the April 2007 list, there were still around 18 projects either newly committed or entered the list at an advanced stage in that six month period.

The announced capital expenditure of the 91 advanced projects at the end of April 2007 sums to $43.4 billion.

However, ABARE said it should be noted that even projects that have reached the committed stage may be deferred, modified or even cancelled if economic or competitive circumstances change sufficiently.

Among the more notable large scale projects in ABARE’s April 2007 list that are still undergoing feasibility studies are seven proposed LNG developments that, collectively, co

Why The Mining Boom Will Last -1

Any fears the resources boom might not last or might quickly vanish have been answered by the results of the latest survey of investment and spending from the Federal Government’s main resources adviser.

Prepared by the Australian Bureau of Agricultural and Resource Economics (ABARE), the report looks at spending on mining developments, past, now and planned, as well as the amount spent on exploration.

In all cases, bar the metal industry, spending is at record or near record levels and based on the conservative estimates contained in the report, the boom could last for quite a while yet, thanks to the China boom.

That fits in with the thinking in a recent paper from the Reserve Bank on the boom and its sources and differences with past resources booms.

ABARE says that mining companies are planning a record $43.4 billion of new projects, thanks to higher demand and rising prices.

In a report published on its website yesterday ABARE said the value of advanced projects to build mines and oil and gas fields has risen 24 per cent from the $34.9 billion reported last October in the previous survey.

The bulk of the increased spending came from the approval of three new iron ore projects valued at $7 billion, according to the bureau.

ABARE said there was a record 279 major projects planned, with 91 considered to be ‘advanced’. A further 188 projects were at less advanced stages or undergoing feasibility studies, the Bureau said.

A feature of the report was the sharp rise in exploration spending that has happened, despite industry fears money was not being spent.

ABARE said exploration spending on minerals in Australia is estimated to total over $4 billion in 2006-07, an increase of over 56 per cent on exploration expenditure in 2005-06. In real terms (2006-07 dollars).

It said the spending in the 2007 financial year on exploration “will be the highest on record and around 72 per cent higher than the average annual expenditure on exploration over the past 25 years.

“While exploration expenditure has increased recently, it cannot be determined from ABS data what proportion of the increased expenditure is related to increased exploration activity or attributable to higher costs of inputs, such as labour and equipment.

In the first half of this decade, exploration expenditure in Australia, in real terms, was well below the annual average of the past 25 years.

“Brownfields exploration around known deposits – has made up an increased proportion of total exploration expenditure.

“This can be partly explained by the current trend of developing projects with larger production capacities, which generally require larger resource delineation programs.

“In addition, mining companies are reassessing reserves at current and depleted mining areas, with the view of extracting additional reserves that are now considered to be economic at current high commodity prices.

“Mining at or around existing deposits is attractive for companies because projects can be started sooner and generally have a lower capital expenditure because often there is existing infrastructure in place.

“In 2006-07, exploration expenditure is expected to increase across all major commodities.

“Petroleum exploration is estimated to increase to $2.14 billion, an increase of 64 per cent from 2005-06. Petroleum exploration expenditure in 2006-07 is likely to be the highest (in real terms) since 1982-83 and 74 per cent higher than the annual average over the past 25 years.

“Increased petroleum exploration has been encouraged by historically high global oil prices. With world oil prices forecast to remain relatively high in the short term, exploration expenditure can be expected to remain historically high.

“Iron ore exploration expenditure in 2006-07 is estimated to almost double to $320 million.

“A number of successive annual contract price rises and the prospect of continued strong Chinese demand for iron over the medium term are important drivers behind the significant increase in expenditure.

“Since 2003-04, gold exploration expenditure in real terms has remained relatively stable at around $400 million a year.

“In 2006-07, however, gold exploration expenditure is estimated to increase by 25 per cent to $515 million.

“The increase in gold exploration activity is attributable to the increase in Australian dollar gold prices, which in 2006 averaged $800 an ounce, an increase of 37 per cent from 2005.

“Base metals exploration expenditure in 2006-07 is estimated to total $560 million, an increase of 52 per cent from 2005-06.

“This increase is mainly attributable to strong rises in expenditure on copper, nickel and silver-lead-zinc exploration, reflecting substantial rises in global prices for these commodities.

“For example, in 2006, copper prices increased by over 80 per cent, while nickel prices rose by more than 65 per cent.

“In real terms, exploration expenditure on base metals in 2006-07 is expected to be more than double the 25 year average ($260 million) and the highest on record.”

CSR Looks Soggy

Building products and sugar group, CSR, would be on most lists of companies to be ‘hugged’ or ‘grabbed’ by a private equity group seeking an easy conquest.

Such is the company’s below par profit performance you have to wonder why that hasn’t happened.

Is it the fact that it operates in the highly political sugar industry in Queensland which would easily defeat any attempt by a financial buyer to get greater efficiencies and lower costs?

Or is its presence in the building industry and its continuing reliance on property development for a small but significant contribution to annual earnings that keeps the raiders at bay?

Certainly the involvement in aluminium isn’t of interest given there are pre-emptive rights and the metal output is heavily hedged which denies CSR the full benefit of strong world prices.

And now, thanks to lower results from sugar, a fall in property earnings and perhaps from building products, CSR is looking at a fall in 2008 earnings, after yesterday reporting a small drop for the 2007 year.

The shares fell by around 14c to $3.56, which is well under the $4 level when it was being touted as a buyout candidate late last year.

CSR said net profit was $273.3 million for the year to March 31, down from $305 million in fiscal 2006 and excluding significant items, the result was $240.5 million, a decline of 3.7 per cent.

The company said earnings before interest and tax (EBIT) was $406.1 million, down 2.6 per cent from $416.8 million.

All in all a ‘gentle decline’ and reflective of the company’s vague positioning and future prospects.

The new CEO, Jerry Maycock said in a statement accompanying the results that his early priorities for the coming year will be to assess further opportunities for growth, while focusing on a number of initiatives in each business to enhance performance and reduce costs.

“CSR has a great brand and an exciting future, albeit with shorter term challenges. At this early stage in the year, we expect the overall EBIT result is unlikely to reach last year,” Mr Maycock said.

(There was the bad news amid all the spin).

“The medium term outlook for our businesses is positive as we will begin to benefit from recent investments to improve performance and we have a number of interesting growth opportunities under review both in our current operations and by external acquisitions.”

CSR blamed the full year result on “external adverse market conditions for some of its businesses”.

Sugar profits rose with EBIT up 5.2 per cent to $130.1 million, despite interruptions to milling season caused by wet weather.

Wet weather reduced sugar production and yields and increased milling costs, offsetting some of the benefits of higher prices. But while sugar production will be higher this year, the emerging oversupply situation and volatile prices will push earnings lower.

Building products continued to be hurt by the ongoing slowdown in the residential housing market, particularly in New South Wales and while EBIT of $84.5 million was up from $80.9 million in 2006, that result was hurt by one-off costs of $20.6 million related to two plant closures.

MBL Goes For $1 Billion

Macquarie Bank has raised $750 million from a placement to the professional end of the market and is looking to tap smaller shareholders for up $348 million.

Xstrata Lifts LionOre’s Offer

Xstrata has returned fire in the takeover battle for LionOre Mining International, Australia’s third largest nickel producer, by increasing its takeover bid to $6.7 billion.

Officeworks; Why Not CXP?

Officeworks and Target seem to be the assets most interested buyers want in the break up of Coles Group.

DJS Loses A Store

A week is supposed to be a long time in politics, in retailing these days it seems to be very, very quick.

Take David Jones for instance. It was only last Wednesday that the retailer was warning the market that it might lose a store in the Eastgardens mall in Sydney’s Eastern Suburbs.

The retailer said:

“The lease relating to David Jones’ Eastgardens (NSW) store expires in October 2007. The Company has been in discussions with Terrace Towers (the owner of the centre) although to date, agreement has not been reached.”

Mr McInnes said, “Whilst our firm preference is to enter a long-term Eastgardens lease, we are not yet in a position to do so. In the event that an acceptable agreement is not reached, we believe that Myer is likely to enter the Centre”.

Yesterday that expectation was realised with the news that the now privately-owned Myer will replace rival David Jones at the Westfield’s Eastgardens.

And Mr McInnes made it quite clear why the retailer had withdrawn from the centre:

“Despite lengthy negotiations with Terrace Towers we have been unable to reach agreement on terms that are economically feasible for our Company and in the interests of our shareholders.

“The profit that would be generated under the proposed terms of the lease will be captured as we transfer David Jones’ customers to our Bondi Junction and Sydney CBD stores.

This can be achieved at a vastly reduced investment on David Jones’ part in comparison to renewing the lease on the terms proposed.

“We believe that given our decision not to accept Terrace Towers’ terms and renew our Eastgardens lease, Myer will enter the centre on the terms we declined.

“In our view entering into a lease on the terms proposed by Terrace Towers reflects a decision based on short term sales gain with limited long term benefit for the lessee.

“David Jones’ Store Portfolio strategy is very straight forward – we will not commit to a long term lease on the basis of short term Sales growth – our decision will always be based on what delivers the best overall value to our shareholders over the life of each lease,” Mr McInnes said.

“Our Eastgardens store profit has been in decline since the opening of the redeveloped Bondi Junction centre in 2004.

MBL’s Profit Surges

By any measure the image of Macquarie Bank in the market is of an entrepreneurial financial services company with ambitious plans and a fairly adventurous approach to doing business.

An Irritant For Coles In Officeworks Sale?

There’s a small problem that might just cut the billion dollar-plus valuation Coles expects to get for its Officeworks chain of business supplies.

Car Industry Shake-Up?

Could we be on the verge of a significant shake-up in the global auto industry?

FLT Signs Up For New Deal

Once again we have had a reminder that it pays to think long and hard about takeover offers and be a little slow in accepting.

You never know what might be around the corner, especially if big shareholders start talking about the company being undervalued.

We have just seen that with the mop-up bid for the 16.4 per cent minority holdings in Colorado from Hong Kong equity Fund AEP and its local arm, ARH, at $6.20 a share.

And we received an even better reminder yesterday from Flight Centre when the second version of a deal with private equity group, Pacific Equity Partners, was revealed.

Flight Centre said it had reached preliminary agreement to transfer its assets into a venture with PEP, around two months after a $1.6 billion management buyout bid with PEP was rejected at a shareholders meeting.

This deal stems from that rejection of the $17.20 a share buyout offer from PEP.

It forced PEP to come again with a new offer that emerged yesterday and is similar in style to the joint ventures PBL and the Seven Network struck with CVC Asia and KKR respectively.

Speculation about the deal has seen the FLT share price driven to above the $17.20price and yesterday it rose to $17.70, up 20c on the day.

Under the proposed deal with PEP, Flight Centre will raise $1.1 billion in cash by transferring all its operating businesses into the venture.

Flight Centre will own 70 percent of the venture and Sydney-based PEP will own the rest. If certain targets are met, PEP’s stake will rise to one third and FLT’s stake will fall to 66.6 per cent.

Flight Centre said in a statement to the ASX yesterday that it would now proceed to negotiate and finalise an Implementation Agreement with PEP as quickly as possible.

“Under the terms of the agreement, it is proposed that PEP will purchase a 30% economic interest in a leveraged joint venture to be formed to acquire the FLT business’s operational assets. PEP’s minority holding will increase to one-third if the business achieves certain targets.

“FLT shareholders will effectively retain an initial 70% economic interest in the joint venture’s business via their existing FLT shares. This interest will reduce to two thirds if the targets are achieved.

“FLT expects to receive about $1.1 billion in cash proceeds from the transaction, to be sourced from debt facilities entered into by the joint venture and the amount paid by PEP ($195 million) in acquiring its economic interest.

“It is proposed that the substantial part of these proceeds will be returned to FLT shareholders as a combination of cash and franking credits via an off-market buyback of FLT shares.

“The proposed buy-back is expected to be structured along similar lines to that proposed during the previous privatisation proposal and will be implemented by way of a scheme of arrangement.”

The company said it would offer a way for smaller shareholders to exit in full for an as yet to be determined cash amount per share if they do not wish to indirectly hold a continuing interest in the leveraged, restructured FLT business.

In addition, FLT shareholders will receive a $0.40 per share fully franked final dividend for the current financial year. The final dividend is expected to be paid prior to the transaction’s completion.

The sale of the FLT business to the joint venture will be subject to approval by an ordinary resolution of shareholders at a FLT shareholders meeting and will not be conditional on the outcome of the scheme of arrangement to facilitate the subsequent off-market buy-back of FLT shares.

Prior to any such meeting, an independent expert will review and evaluate both the sale transaction and the proposed scheme of arrangement.

The scheme of arrangement to facilitate the subsequent off-market buyback of FLT shares will be subject to a resolution passed by 75per cent in value and 50 per cent in number of shareholders present and voting at that meeting.

FLT chairman Bruce Brown said: “This proposal has the potential to benefit FLT and its shareholders, including those who do not wish to maintain an investment in what will become a highly leveraged vehicle”.

The company said the deal will release a significant cash amount to shareholders, introduce a disciplined and experienced strategic partner in PEP with a strong track record of delivering high returns, deliver an attractive cash exit opportunity for smaller shareholders via a tax-effective off-market buy-back and provide those Flight Centre shareholders who choose not to sell with the opportunity to participate in the FLT business’s future upside potential.

It said this potential was “evidenced by the company’s recent upgraded profit outlook for the current year, and also create the potential for enhanced returns by introducing significantly greater leverage than can be practically obtained at the moment.”

The creation of the leveraged joint venture will not affect the travel agency business’s day-to-day operations and the joint venture’s cash flow will primarily be used to service the business’s new debt.

That will mean income and franking credits will not be important and any returns will probably be more capital in nature.

FLT told investors late last month that “Preliminary results for the nine months to March 31 2007 show that FLT’s pre tax profit is ahead of expectation and about 18% up on the previous corresponding period, excluding the abnormal $22.4 million gain from the sale of FLT’s Adelaide Street headquarters”.

That upgrade and the possible venture with PEP (which was announced a month earlier) helped rekindle interest in FLT shares and has pushed them past the $17.20 level of the first offer.

LEI Booms