Careful Pinocchio: UBS ups Qantas stake

The Qantas saga drags on and on and on.  The longer it goes on the more likely it seems that it will be successful.  But what's this we read from Reuters?  "UBS ups Qantas stake to 10.4pct; buyout in doubt."

Is that what it really means?  Is the buyout REALLY in doubt?  Thankfully it isn't just us amateurs that are confused by all the Qantas shenanigans.  Transport analyst Fabian Babich from BBY in Sydney told Reuters before the announcement of UBS's increase holding, "It is believed UBS has been buying.  It seems difficult to understand if they are not going to accept the offer."

Hmm!  UBS last week suggested that it was not going to accept the offer.  This week, or yesterday to be precise, UBS Nominees Pty Ltd increases its stake in the company to 10.4%.  A stake large enough to block the takeover without help from any other shareholder.

According to Babich, why would UBS buy up this stake at below the offer price unless it intended to accept the AUD$5.45 offer?  Unless of course it was purposely building its stake at a price which it considered to be below fair market value, taking advantage of the share price being approximately 10% below the Airline Partners Australia offer price.

Perhaps UBS believes that now the regulatory hurdles have been lifted it would be much easier for a competing consortium to knock together a similarly structured deal, only with a higher price on offer.

Or... what about this for a theory?  We potentially have the biggest case of stock manipulation or insider trading that the Australian market has seen is goodness knows how long.

How so?  Surely insider trading and stock manipulation is a thing of the past.  Surely they were only real problems when financial markets were a lot less liquid than they are now - take a look at daily trading volumes today and compare them to twenty years ago.  Surely they were only problems when information was under the control of insiders and market participants - the internet now means that sensitive information is available at the touch of a button.

Perhaps.  But what about the unlikely scenario (careful Pinocchio) where a major shareholder is one of the world's largest investment banks and manager of funds?  What if that very same investment bank was also coincidentally the principle adviser to the firm that is subject to a takeover?

Not only is the firm - Qantas - subject to a takeover, but the takeover has already been approved and endorsed privately and publicly by the Board.  The very same Board that would have hired the investment bank - UBS - to advise it on handling the takeover and who's opinion it would have relied upon prior to accepting the AUD$5.45 offer.

But that doesn't amount to insider trading or manipulating the stock.  Unless of course the investment bank/adviser/major shareholder is systematically 'talking down' the offer to below the official offer price in the full - or even partial knowledge - that it will ultimately accept the offer.

Why not? A quick and - dare we say it - almost guaranteed 10% return.  Is there another collection of shareholders that could reasonably be expected to conjure up the 10% required to halt the takeover?  It doesn't look likely.

We are sure that we aren't the first ones out there to have noticed this amazing treble of coincidences.  We just wonder if our friends at ASIC have woken from their slumber and are planning a visit to the venerable Swiss institution.

Kris Sayce
for The Daily Reckoning Australia

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