Qantas Takeover Drives Aussie Markets to Record Highs


MELBOURNE AUSTRALIA 18 December 2006 – It was a week of records for the markets, driven by the Qantas (ASX: QAN) takever.  The All Ordinaries has had its metaphorical eye on 5,500 points for a few months but has struggled to get there.  Last week it burst through in grand style without pausing to take it in.

The market on Thursday saw the All Ordinaries gain by over 1% to close comfortably above this level at 5,550.90.  By Friday it was just left to take things easy, pushing up a few extra points to close the week up by 2.6% at 5,557.00.

According to Agence France Presse, “Cashed-up Qantas to look for Asian growth after takeover” they quote analysts as saying.  They quote analysts at Credit Suisse as saying regulatory hurdles are “non-issues” and that “the $5.60 a share offer, increased from an initial $5.50 was well above their $4.71 valuation of the Qantas stock and ‘concluded we would view favourably shareholders accepting the consortium’s offer.'”

AFP also quoted Peter Harbison, managing director at the Centre for Asia Pacific Aviation, he said, “As a listed company in a small country at the end of the world, Qantas was not previously well-placed to survive, once global markets deregulated,” and that “the new ownership can go where the public company could not”.

He went on to say “As soon as the transaction is completed, it will not be surprising to see an acquisition-oriented Qantas begin moving into new Asian markets,” and “It is already represented in Singapore with Jetstar Asia. This model, along with direct minority acquisitions in existing airlines, either by Qantas directly, or by its new owners, will allow it to develop a serious foothold in such markets as China, India, Indonesia and other parts of Southeast Asia.  In this way, the Qantas/Jetstar brand will become ubiquitous in Asia.”

As ever, there will surely be one winner from all this.  Maybe not the investors that eventually are left as part owners of Qantas, but for a time Macquarie Bank Ltd. (ASX: MBL) will do very nicely from it.  As Brian Johnson, banking analyst at JP Morgan points out, “Macquarie would extract substantial investment banking fees at every turn… From Macquarie Bank’s perspective this is not about owning an airline but rather extracting substantial investment banking fees from breaking Qantas up,”

While John Heagarty, analyst at ABN Amro said, “We believe Macquarie will benefit from substantial advisory and funding fees as a result of this transaction.”

As an end note, we thought it interesting that the pilots union is encouraging its members to buy $50,000 worth of Qantas shares in order to vote against the deal.  Given that the share price would probably fall to sub $4 if that happened, we find it hard to believe that the pilots will invest knowing they are in for an immediate 30% drop in the value of their investment if they are successful.

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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