Countdown begins on Qantas takeover bid

It's turning into an epic of outlandish proportions.  It is a cliffhanger with greater suspense than the classic 'Who shot JR?' in the 1980's.  The whole of the sharemarket will be looking at Qantas long after the ASX closes for business today.  The consortium, Airline Partners Australia have until 7pm this evening in order to break through 50% barrier of acceptances and therefore trigger an automatic extension so APA can achieve the 70% required to make the bid unconditional.

As of last night APA had achieved 33% of acceptances from shareholders and they would be hoping that the estimated 40% held by hedge funds will safely take them past the 50% and on towards the 70%.  Considering that the hedge funds are likely to be highly leveraged into their positions, and that they are probably only looking at a profit of 10, 20 or 30 cents per share, it seems unlikely that they will want to risk the Qantas share price falling back to around $4.50

If it does fall back.  There is no reason to guarantee that Qantas will resume trading at its pre-takeover offer levels.  Unless the hedge funds panic and look for the exit quick smart, and with a 40% total position it probably wouldn't take too many of them to lose their bottle.

However, by the same token few investors have been in any hurry to sell out so far.

BBY aviation analyst Fabian Babich told News Ltd, "Investors will wait until the last minute before accepting in droves.  If the bid is successful, we expect the share price over the next 12 months to fall to less than $3.45, as APA implements its recapitalisation plan with equity totalling about $2 per share returned to shareholders and replaced with debt. If the bid is unsuccessful, we expect the share price to fall below $5 and possibly as low as $4.50."

He went on to say, "It would be confirmation the hedge fund holding has gone up, and it suggests there's a frenzy of activity ... it's increased another one per cent reflecting trading on behalf of overseas clients.  We would cite that as evidence the 40 per cent number has crept up over recent times which all tends to go in the direction of concluding they will deliver the result APA is looking for and that the hedge funds are looking for."

Depending on whether it reaches 50% and if so how much does it surpass it, APA may have to look at sweetening the offer in order to achieve the 70% mark.  In fact APA would prefer to beat it by a big margin if they can in order to get to 90% acceptances.  Don't be surprised if those bankers spend most of their weekend working out the numbers in order to raise the bar by as much as they can afford.

The countdown has begun.

Kris Sayce
The Daily Reckoning Australia

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