Bankers to the APA bid for Qantas should be very nervous after loosening the purse strings to try and help the Macquarie Bank-led bid team restart its stalled offer. That’s if you can believe comments made by the public face of APA, chairman Bob Mansfield, about the myriad threats to Qantas profitability.

APA summarised the situation as follows:

APA expects that the competitive threats described below will have a negative impact on Qantas’ outlook and would be likely to have a negative impact on Qantas’ share price in the absence of APA’s offer.

And in comments in this good yarn in The SMH Mansfield was quoted along the same lines:

In a final push to get the deal over the line, the spokesman for the consortium, Bob Mansfield, highlighted to Qantas’s remaining shareholders the competitive threats the airline faced from Middle Eastern airlines and the pending entry of the Singapore Airlines-backed Tiger Airways into the domestic market.

The threats were considered theoretical at the time the [consortium’s] offer was announced [in December]. They are now very real,” Mr Mansfield said.

He failed to mention that Qantas has had three profit upgrades since speculation of the bid first surfaced, and that Qantas aircraft are the fullest they have been since the airline was sold by the Keating government in the mid-1990s. Qantas is still on course to post a record full-year profit, despite the recent rise in oil prices, thanks to record passenger demand and cost cuts.

So how will a takeover and acceptance of the $5.45 bid improve the prospects of Qantas being able to resist these threats? The takeover won’t make the threats go away and Qantas has faced up to these and prospered before. Doesn’t Mansfield and his fellow APA directors remember September 11, SARS, the collapse of Ansett or the arrival of Virgin Blue? Qantas’ profits are substantially higher and heading higher.

But if these are threats to Qantas, why did the banks loosen their lending restrictions and switch from a charge over the assets of Qantas to a loan over the shares to be bought in the offer? More fees, a higher rate of interest and a rapid repayment program as $4.5 billion is returned to shareholders, probably explains it.

Faced with the prospects of a capital return, why should any hold-out shareholder accept? Stay in and get some more of their money back through the gearing up of the Qantas balance sheet.

Peter Fray

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