BREAKFAST DEALS: Frequent buyers

A group of powerful Qantas shareholders may contain Gerry Harvey and Katie Page, while Billabong could be wooing private equity – again.

The group of influential investors prodding at Qantas Airways, which reportedly includes Gerry Harvey and Katie Page, are sitting on a small stake in the airline. Expect the PR battle to go up a notch. Meanwhile, Billabong International USA president Paul Naude is thought to be chatting to a few private equity firms. How they’ll be different from the last ones to pass on Billabong remains to be seen. Also, Telstra’s purchase of South Australian ISP Adam Internet is getting some objections, MYOB is going for a $125 million listed note and Horizon Oil’s PNG assets have grabbed a solid valuation.

Qantas Airways

Qantas Airways is expected to sell its Emirates alliance harder to shareholders with reports over weekend indicating a group of influential activist shareholders have actually got a small stake in the airline.

Most of the players are familiar. Media reports indicate that venture capitalist Mark Carnegie, a former investor in this website, along with former Qantas boss Geoff Dixon, Leighton finance head Peter Gregg and ad supremo John Singleton have taken a stake of 1-2 per cent through a trust.

At current prices, the stake is worth somewhere around $50 million and The Australian Financial Review believes that discussions have been held with financiers about funding a larger stake purchase. No decision has been made on whether to go down this road.

It appears the group has held the stake for quite a while; well before Qantas boss Alan Joyce secured the signature of Emirates counterpart Tim Clark.

Curiously, The Australian reports this morning that retail legend Gerry Harvey and his wife Katie Page, Harvey Norman chief executive, are understood to be among the investors in the private trust.

The possible directions that the activist shareholders think Qantas should be taken are well known. They like the idea of floating the Jetstar business on the ASX, as well as a sale of the airline’s Frequent Flyer program.

A greater focus on Asia is also part of their thinking, although it should be pointed out that Asia was Joyce’s first stop when looking for a strategic alliance for a premium regional carrier. It’s a little more difficult than he hoped.

In June, Qantas hired Macquarie Group to help out with its defence strategy, while Citibank was tapped to watch the company’s register. It was an acknowledgement that a day like this was coming.

Given how low the Qantas share price is at the moment, the murmurings of discontent on the register are few and far between. Broadly speaking, the airline’s shareholders believe in Joyce’s strategy and it’s up to the activists to change their mind.

With the Australian Competition and Consumer Commission set to rule on the Emirates tie-up in March next year, Joyce has a finish line of sorts on the horizon.

Billabong International

We’re one week into the six that Billabong International USA president Paul Naude has taken to try to construct a leveraged buyout of the embattled company and apparently he’s got a few fish circling the bait.

The Australian Financial Review reports that Naude is speaking to "at least two private equity players in Europe and the United States”. Given that TPG Capital and Bain Capital took a look at the Billabong books and thought it best to high tail out of there, this isn’t entirely compelling news.

But he’s talking to them and that’s something for the register. Billabong shareholders also have to contend with the possibility of the company floating its online retail sites SurfSwitch and Swell, also revealed by the AFR.

This column has argued that Billabong needs to come clean with its shareholders if this buyout attempt doesn’t work. They’ve simply watched too many possible buyers take a closer look at the company and find that it’s not worth $1.45 a share – when it was trading above $4 a little under a year ago.

It mightn’t be all that bad for the register because you have to look at the company from a private equity player’s point of view.

Private equity typically doesn’t like to invest its cash for much more than five to seven years. The Billabong share price already reflects painful and prolonged recovery. Indeed some doubt the company will survive in a meaningful way.

But the private equity bidders mightn’t doubt that the company can be resuscitated, just that not enough can be achieved in the timeframe to fit their investment strategies.

Billabong could also argue that the lack of interested industry buyers is a reflection of the broader problems traditional players are facing. Or more to the point, ‘We’re all struggling, but Billabong has a comeback plan’.

In the meantime, we’ll have to wait and see what Naude can get up to.

Telstra, Adam Internet

The post-NBN world is shaping up as one where the major players aren’t likely to give an inch without a fight.

Telstra is trying to pick up low-cost South Australian ISP Adam Internet, which is rumoured to be valued at around $60 million.

iiNet announced at the time that it wasn’t impressed with the idea and has followed that up with a submission to the ACCC, according to News Limited. Optus has apparently done the same.

"We're very concerned that Telstra will use Adam as a vehicle to increase its market share in the price-sensitive end,” iiNet regulatory boss Steve Dalby said, according to the report.

Telstra is planning to keep Adam as a standalone brand with its 90,000 customers. It’s highly likely that the ACCC will give Telstra the green light; the question is whether they require the telco to provide Adam with the same wholesale access prices as its competitors. This should sound familiar.

The consumer watchdog had previously set November 12 as the deadline for submissions, but has since announced that it’s seeking further information from the merger partners.

A new date for its decision is still pending.

Wrapping up

Accounting software company MYOB is set to launch a $125 million listed note as owner Bain Capital looks for some coin to pay down debt and fund future acquisitions, the AFR reports.

Bell Potter Securities reckons that the Papua New Guinea assets of Horizon Oil could be worth more than $500 million. Last week, Sydney’s Horizon announced that it was looking to sell up to half its interest in its PNG assets to a potential development partner.

Staying with energy, Santos chief executive David Knox played down the idea of a capital raising to fund the almost $8 billion in planned spending between Queensland and PNG, saying that the company is very well funded.

However, Knox did say that he believes energy chief executives will be working much more closely with each other to drive costs down. It’ll be interesting to see what form this takes.

Meanwhile, attention is building on PetroChina as the market wonders which company is behind the mystery proposal for gas explorer WestSide Corporation.

PetroChina inked an agreement with Molopo Energy for its Queensland assets as Molopo focuses on the American Permian Basin. It’s well known that the Chinese giant is interested in purchasing more in Australia.

And finally, an important milestone for the Australian television industry will reportedly be reached this week.

According to AFR, Nine Entertainment’s scheme of arrangement documents, the pages that will usher in its new ownership structure, could be lodged as soon as this week.

Nine’s debt dilemma has been the biggest company deal story this year.

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