As expected, Macquarie’s investment banking team put together a very slick Bidder’s Statement for Airline Partners Australia’s $5.60 cash LBO of Qantas. Interestingly, the Bidder’s Statement has a very lengthy 23-page “wrap”. Wraps are a relatively new phenomenon: produced by investment banks, they are a colourful and glossy sales pitch of a potential takeover (or scheme). The wrap is followed by around 50 pages of more boring legal stuff that no one usually bothers to read. As a rule of thumb, the longer the “wrap”, the more contentious the takeover.

23 pages implies that APA thinks its bid is far from a lock. A typical hostile bid will have a five to ten page wrap (one of the longest wraps in recent years was Toll’s 23 page spread in its bitter bid for Patrick). The fact that APA produced a massive sales pitch despite its bid being recommended by the Qantas board shows just how wary APA is of Peter Costello (APA bowed to the inevitable yesterday and announced that it is seeking a formal review from the Foreign Investment Review Board).

APA went out of its way in the Bidder’s Statement to come across as the “good guys”, using very careful language in parts. APA was especially careful when describing their intentions with regard to Qantas’s valuable and politically sensitive frequent flier scheme. The Bidder’s Statement refers to the frequent flier scheme (which has regularly been mooted in the press as being a likely spin-off) on four separate occasions. Specifically, APA notes that the transaction “will not result in any loss of Frequent Flier points”.

Like a young man meeting his new girlfriend’s father for the first time, APA has chosen its words very carefully. While the wording of the Bidder’s Statement is intended to provide readers with the impression that the takeover will not affect the frequent flier scheme, on a closer read, nothing would prevent APA from radically changing the value of frequent flier points in a year’s time.

For example, nothing in the Bidder’s Statement implies that APA won’t reduce the number of frequent flier seats which are available on each flight. Even more importantly, the Bidder’s Statement does not provide that APA won’t increase the amount of frequent flier points required to fly to certain destinations. For example, 48,000 frequent flier points are required for a one-way trip flight to LA – if Qantas were to increase the requirement to 80,000 points for the one way trip that would reduce the value of frequent flier points owned without actually causing the “loss” of any points.

While APA may have successfully sold its bid to Qantas’s board, the biggest test will be how well it can sell the politically sensitive bid to the Australian government in an election year. While APA certainly appears to be doing all the right things at the moment, it should be remembered, people are always polite during the first date.

Peter Fray

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