Last week we barely had the opportunity to contribute anything to the Daily Reckoning. In fact our wisdom was only evident twice in what was a reasonably exciting week, especially on the takeover front – again.
Whilst we were in Adelaide on Thursday we did make an attempt to gatecrash the Paydirt Uranium Conference being held at the Adelaide Hilton. Without success. It looks as though if you want to get in to see what all the Uranium induced excitement is about, you need to purchase a (not inexpensive) ticket.
But as for market news it is difficult to look past the wrangle over Qantas. Coincidentally, it comes at the same time as the European Union and the United States agree to implement a total ‘open skies’ policy on trans-Atlantic travel.
Could we see the same policy implemented here? At the moment Qantas can pretty much do what it likes, flying to and from anywhere. Non-domestic airlines, however, have greater restrictions. For instance, British Airways can only fly into Australia from one of the stop-over points, such as Hong Kong. The same policy is usually implemented in other countries to provide more favourable terms to the domestic airline than to the foreign competitor.
The fact that there are now a number of major shareholders suggesting that they will block the bid makes one think that if the Qantas deal does not go through, the government will be reluctant to pursue a similar open skies approach for fear of a backlash from management and unions – and probable threats from Qantas management that they would have to reduce regional services.
So, will the deal go through? It looks less likely as each day passes. Airline Partners Australia requires a 90% acceptance of the AUD$5.45 takeover offer to make its bid unconditional. And the figures contained in the Weekend Australian Financial Review it doesn’t make good reading for APA.
Approximately 10% of institutional shareholders have voiced their dissatisfaction with the AUD$5.45 price, while it seems likely that there are a reasonable number of retail investors and other institutions that would like to hold out for more. According to the Weekend AFR, roughly 40% of Qantas shares are held by hedge funds.
This size of holding by hedge funds seems unfeasibly large, although not impossible. More likely these are just other institutional shareholders, but we are prepared to be proved wrong.
Whoever it is holding the stock, one institutional dealer, Charlie Aitken at Southern Cross Equities in Sydney, is prepared to write the epitaph on this one already: “The interesting thing is the stock is holding up above AUD$5 when the bid is effectively dead. That implies the premium was not that big,” he says.
The Daily Reckoning Australia