The contrast between the Qantas and Orica buyout proposals is very stark.

At Qantas we now have the farce where the chairman and independent directors (including James Packer) are lambasting shareholders and warning them they will lose money if they do not accept a patently cheap price from the Macquarie Bank-led consortium known as Airline Partners Australia.

Included in the urgers is Qantas management, who disgracefully threw their lot in with Macquarie Bank from the start. A profile in the Australian Financial Review magazine last month of Qantas CEO, Geoff Dixon, confirms this, as the first approach from Macquarie Bank’s Nicholas Moore was made to Dixon and not to the board or chairman, Margaret Jackson. Dixon told Jackson and Jackson told the board.

That meant Dixon was conflicted from the start because he knew of the interest before the board did. The approach has a ring of the Alinta conflict of interest to it; where the initial approach was from Alinta management and then chairman John Poynton to Macquarie Bank.

Now Dixon is warning of terrible times ahead with increased competition from the likes of Virgin Blue and Tiger Airways, increasing fuel costs and other imposts. Life is never easy for Mr Dixon.

But he and the board have not mentioned the highly favourable impact on the Qantas business of the rising Australian dollar which is slashing fuel and other overseas costs (air and airport charges for example, crew accommodation and lease payments and other financing charges).

Nor has he mentioned the favourable impact from more people travelling overseas to take advantage of the 17 year high for the dollar; nor any mention that the rise in the dollar has eased the need for a lot of the fuel surcharges on local and international fares.

Oil prices (and jet fuel prices) are no higher than they were a year ago and the dollar is significantly higher: up around 10% or more. In fact the surcharges are the reason why Qantas’s profits are booming, but Dixon and his chairman have been strangely quiet on that.

Over at Orica, the right thing was done with the board and management remaining aloof and interested only in making sure the offer was looked at and then accepted or rejected to the benefit of shareholders.

The US sharks apparently want to keep the management but there has been no crossing the line like at Qantas with management being seduced into becoming part of the bid.

Helping Orica was the presence of Perpetual Trustees as a major shareholder with 14%, as its attitude to the bid will be vital. Perpetual is blocking the $18 billion offer for Rinker and the $3.8 billion privatisation of APN News and Media.

And there is another problem at Orica which has to be dealt with and it’s going to be costly.

Buried in the Orica accounts is $297 million (almost $1 a share) in provisions for a number of ongoing problems such as the Botany ground water Hexachlorobenzene contamination which last financial year cost $49 million that was not reflected in the Group profit and loss statement.

Orica put away the money in past years for that and a number of other pollution problems and is drawing down from that provision to meet the clean up, disposal and remediation costs. The company also has a continuing $200m tax dispute with the Tax Office: that’s worth another 60c a share.

The buyout group hasn’t done due diligence so will these provisions costs and disputes cut the $33 figure or whatever the next offer price is?

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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