BREAKFAST DEALS: Qantas pull-out

Qantas agitators sell down their stake, while Telstra asks the ACCC to hold the line on Adam Internet.

The activist investors targeting Qantas Airways, led by Mark Carnegie and former Qantas boss Geoff Dixon, have reportedly sold down their stake just as the flying kangaroo asks for permission to tweak the ACCC Trans-Tasman conditions of the Emirates deal. Telstra Corporation is also talking to the consumer watchdog over Adam Internet, but seems to be on the back foot. Meanwhile, Sundance Resources looks to have reached another deadline without a deal, Archer Capital is reportedly offloading Ausfuel and Gina Rinehart is buying into Gippsland Oil and Gas.

Qantas Airways, Emirates

Qantas Airways chief executive Alan Joyce can unofficially declare victory of sorts over his predecessor Geoff Dixon.

The Australian Financial Review understands that the group of activist investors which includes Dixon, former Qantas chief financial officer Peter Gregg, venture capitalist Mark Carnegie, adman John Singleton and retail billionaire Gerry Harvey, has sold down its stake in the airline.

While never publicly acknowledging the matter, Dixon and Co were using the stake as a launching pad to promote an alternative strategy for Qantas to the one currently being pushed by Joyce, headlined by a five-year alliance with Emirates to stem losses from flights to Europe.

Having bought in halfway through last year, the activist investors could claim that it was a worthy exercise because the stock has risen 50 per cent. But given that the aim to encourage alternatives like spinning off Jetstar or selling the Frequent Flyers business met with relative silence from the register, it’s a failure in any meaningful sense.

The failure of Dixon to acknowledge the conflict of interest as an activist investor and chairman of Tourism Australia, which up until recently receive big Qantas money, prompted Joyce to cancel the airline’s relationship with the tourism body. It’s unlikely this bad blood will come good on the latest news alone.

This column rightly predicted that the window for the activist group would close the moment it became apparent that the Australian Competition and Consumer Commission gave the deal the green light. According to the AFR, the group sold down its stake on January 22, three business days after the consumer watchdog gave the deal interim approval. Although in truth, once the ACCC gave the initial thumbs up late last year, the jig was up.

This also serves as a particularly potent signal from the Qantas register that it's not interesting in spinning off Jetstar or selling the Frequent Flyers business for a quick profit. Its members had a chance to look at those ideas from a group with serious insight into the Qantas machine and issued a resounding endorsement of the current airline’s management.

However, Qantas looks headed for a battle of some degree with the regulator over the number of seats it has to provide to New Zealand.

The ACCC has made it clear that Trans-Tasman flights are a concern when it comes to the five-year alliance with the Middle Eastern giant, but Qantas has written to the regulator asking if the minimum number of annual seats to our immediate eastern neighbour could be cut by more than 100,000.

The argument is that the current figure, originally proposed by Qantas itself, was for the year ending June 30 2012. This number, says Qantas, of 2,568,653 included non-recurring seats like the Rugby World Cup or connecting flights that no longer exist.

The Qantas submission was light on details and you’d imagine that further discussions would be taking place between the airline and the regulator.

Telstra Corporation, Adam Internet

Speaking of the competition regulator, Telstra Corporation has requested that the Australian Competition and Consumer Commission suspend its decision timeline on the telco's Adam Internet acquisition.

The watchdog was originally supposed to rule on the deal, thought to be worth $60 million, by February 7. Telstra has stepped in to call an end to that deadline to hold further talks.

"We will continue to engage with the ACCC and we’re confident we can work through any concerns in a timely manner,” Telstra said in a statement.

It’s not possible to tell conclusively, but this is usually a sure-fire sign that the concerned party has became convinced the ACCC was going to rule against it.

The South Australian ISP has about 90,000 customers on the books, which Telstra intended to coalesce into a two-brand strategy – Telstra being the premium version.

But as we’ve seen before, Telstra’s market dominance is always something the consumer watchdog is concerned about.

While we’re on telecommunications, the giant Ontario Teachers’ Pension Plan is reportedly one of eight bidders to make it to the final round of Leighton Holdings’ national fibre-optic network arm Nextgen Networks.

A report in The Australian, which emphasises that its apparent interest is in Port of Botany and Port Kembla, really underlines comments from the fund’s head of infrastructure Stephen Down about prioritising Australia.

Sundance Resources, China Sichuan Hanlong Mining

African-focussed iron ore hopeful Sundance Resources is expected to disappoint its exhausted shareholders yet again with news that the takeover bid from China Sichuan Hanlong Mining has been delayed.

Sundance went into a trading halt yesterday ahead of a deadline tomorrow (Thursday) for the tardy suitor to obtain a credit-approved term sheet from China Development Bank.

Everyone’s expecting that deadline to be delayed. We might finally be surprised by a moment of redemption, but no one’s holding their breath.

This seriously throws into question whether the February 8 deadline for Chinese regulatory approvals or the scheme of arrangement end date of March 1 will be honoured. In fact, you can probably throw those dates out the window.

For its part, Sundance has done its bit for the $1.3 billion deal at 45 cents a share, which was once worth 57 cents a share.

The Mbalam iron ore port and rail project, which straddles the border between Cameroon and the Republic of the Congo, has received all the necessary approvals for construction to begin. There’s nothing left for Sundance to do. It’s all up to its Chinese suitor, which first lodged a bid back in July 2011.

Recent speculation has pointed to Hanlong partnering with another Chinese player to get the necessary financing for the project.

Sundance shares have reflected just how much optimism there is in the market for a CDB-backed bid succeeding or a big partner emerging. The stock finished yesterday’s session at 34 cents each. That’s a 25 per cent discount on the offer price.

Ausfuel, Archer Capital

Back to the competition regulator, The Australian Financial Review reports that private equity firm Archer Capital has tapped Morgan Stanley to offload its independent fuel distributor and retailer Ausfuel for up to $700 million.

This is pertinent to the Australian Competition and Consumer Commission because fuel prices are one of its touchiest areas.

Caltex Australia would be the most logical buyer – although the newspaper reports that oil refiners and traders throughout Asia are being targeted – but the consumer watchdog would likely have something to say about it.

Back in 2009, Caltex tried to pick up 300 service stations from Mobil Oil Australia. The ACCC managed to find 53 stations that it believes would lessen competition if they fell into Caltex’s hands.

Wrapping up

Mining billionaire Gina Rinehart will pick up an 18.3 per cent stake in Gippsland Basin hopeful Lakes Oil for $6.3 million via a notes issue to a wholly owned subsidiary of her main company, Hancock Prospecting, if all the notes are converted.

As part of the deal, Rinehart would see ally Professor Ian Plimer picked as a non-executive director of Lakes Oil, who has variously been described as a climate change sceptic, but in reality is more of a climate change denier.

The news comes after Rinehart offloaded her stake in Mineral Resources. While the substantial shareholder notice hasn’t hit the ASX, MinRes chairman Peter Wade is in The Australian Financial Review this morning saying the relationship between the two companies remains strong, while expression frustration that Roy Hill still isn’t settled.

While we’re on resources, AWE has tapped Credit Suisse to advise it on plans to offload up to half it stake in an Indonesian oil asset for $300 million.

Elsewhere, Lend Lease has secured a contract with Manor Property Group to design and build accommodation for up to 40,000 students across 70 locations in the United Kingdom.

The deal is worth a combined £240 million ($A370 million) for sites in Birmingham, Leeds, Manchster, Sheffield and Hull.

And finally, two deals that captured our imagination in 2012 have finally come to an end as the first month of 2013 draws to a close.

Firstly, Nine Entertainment provided perhaps the most enthralling debt negotiations Australia has seen in quite some time. The Federal Court officially signed off on the scheme of arrangement yesterday, which means that deal is done.

Meanwhile, DuluxGroup has put to bed the most frustrating deal of 2012 (narrowly edging out Sundance Resources) by announcing that it has compulsorily acquired Alesco Corporation.


Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles