DataRoom AM: Qantas cold shoulder

Qantas looks like it may have to fend for itself, while GrainCorp’s exiting boss gives the government a serve.

Prime Minister Tony Abbott has provided some contrasting signals on Qantas Airways over the weekend, but one thing appears clear: significant government help shouldn’t be relied upon. The national carrier’s codeshare partner Emirates Airlines is also unlikely to come to the party, leaving Qantas boss Alan Joyce to wonder whether ignoring the approaches of Etihad Airways was, in hindsight, a mistake.

Elsewhere, GrainCorp’s outgoing boss justifiably hits out at the government, a trade sale is chosen for Queensland Motorways, Wesfarmers makes a divestment and AWE limited receives a takeover offer.

Qantas Airways

Qantas Airways appears likely to be a regular in this column for the next few months as it looks to sort out its very public financial troubles.

The move by ratings agency Standard & Poor’s to cut the company’s credit rating to junk has been the catalyst for the spread of many rumours, largely relating to government assistance and the possibility of new investors coming to the table.

The latest on that was Prime Minister Tony Abbott saying he understood the group’s need to be "unshackled", though he followed up with a call for Qantas staff and shareholders to fight their own battles. In other words, no help from the government is likely to be imminent.

However, The Australian Financial Review has this morning suggested that there is “serious consideration” being given to the prospect of a standby debt facility for a fee of around 1.5 per cent. Such a move could see its credit rating lifted by S&P.

Expect to hear plenty more speculation on that front, though one possible saviour appears to have ruled itself out of proceedings.

Emirates Airlines, a close ally of Qantas through a recently secured codeshare alliance, has distanced itself from any assertions it will look to claim a slice of our national carrier.

The Dubai-based group’s president, Tim Clark, said “equity is not on the table” despite the company keeping a close eye on proceedings, according to Airline Ratings.

Unlike rival Etihad Airways, which has taken a near 20 per cent stake in Virgin Australia, Emirates doesn’t have “a bottomless pit of money”, Clark said.

Despite an equity stake being all but ruled out, Emirates could come into play in other ways. It would most likely be an interested party in any asset sales Qantas may pursue.

The national carrier has been forced to put asset sales on the agenda with many focussing on the airline’s frequent flyer program and Jetstar Asia. The former is a complicated manoeuvre and Emirates, for one, has told the Wall Street Journal it is not interested in buying the frequent flyer program of any other airline.

Jetstar Asia, however, is of interest to Emirates, though it has merely flagged plans to pursue a codeshare deal with the Qantas offshoot. Last week discussions reportedly took place regarding an inclusion of Jetstar Asia in the Emirates-Qantas codeshare agreement but it is not known if an equity stake was discussed.

It would go against the grain for Emirates, which has no history of investing in other airlines.

Indeed, Qantas may now wish it had chosen an alliance with Etihad over Emirates as that ‘bottomless pit’ of cash could come in very handy.

One suspects Alan Joyce is already regretting comments from earlier this year when he described the proposal the group received from Etihad, ahead of the one it supported from Emirates, as “like being offered the bike before the BMW”. That brash statement and assertions “the jury is out on equity partnerships” can be added to Joyce’s ‘I wish I didn’t say that out loud’ list.

That list is getting quite long.


Outgoing GrainCorp chief executive Alison Watkins has taken the opportunity to criticise the federal government for the decision to block a takeover bid for the company by America’s Archer Daniels Midland.

"It is not for us to address what is in the national interest (but) we did feel that it is very important for us to ensure the discussion around national interest is based on facts," Watkins said at The Weekend Australian's Global Food Forum.

"We had a lot of people who had a point of view on GrainCorp who didn't necessarily have a great command of the facts.”

Watkins has a strong case and is backed up by the Australian Competition and Consumer Commission.

As we discussed in this column a few weeks ago, the biggest problem in the GrainCorp takeover debacle was not that it was rejected, but how it was rejected.

Clearly seeking to manage tension within a divided Coalition party room, Treasurer Joe Hockey ignored the advice of the ACCC when coming to the conclusion that competition had not been developed in the grains sector.

Prime Minister Tony Abbott went a step further, siding with the Nationals in labelling GrainCorp a monopoly business:

“We are one of the world's most open economies and I doubt that there would be any other G20 economy where a large foreign business would have been able to purchase an effective monopoly of a major industry here in Australia,” he claimed just days after the bid was blocked.

Just months earlier the ACCC had effectively ruled GrainCorp was not a monopoly business when giving the deal the green light, with the consequent government decision a snub of its findings. This has been glossed over too quickly, with most reports choosing to focus on whether Australia is really ‘open for business’.

The question should have been: does the government trust the ACCC? And if the answer was ‘yes’, then why did it ignore its viewpoint?

The broader question is, what’s the point in having an independent competition watchdog if the government disregards its findings whenever it suits their political viewpoint?

Hockey’s form in ignoring significant government bodies gathered momentum last week through a decision to override FIRB rulings on Yanzhou Coal Company’s ownership limitations on Yancoal Australia.

Queensland Investment Corporation, Queensland Motorways, BrisConnections

The state-owned Queensland Investment Corporation has chosen a trade sale to offload its Queensland Motorways business, according to The Australian.

Indicative bids are due at the end of January, with the process likely to be wrapped up by the end of April.

The news puts speculation of a possible IPO to bed, with QIC confident that demand from pension and super funds will outstrip what it could expect to reap from a float. A slight weakening in the IPO market would likely also have contributed to the decision.

Queensland Motorways was purchased by QIC two years ago for $3.1 billion and is now expected to be worth $5-$7 billion on the back of what QIC has described as a “significant amount of interest” in the toll roads business.

Among the suitors are Transurban Group in a joint venture with Australian Super along with Canadian pension fund La Caisse de dépôt et placement du Québec and a select group of other pension and super funds.

Meanwhile, the race for BrisConnections is just getting started as well, with Fort Street Advisers, Moelis and The Flagstaff Group making pitches to secure the advisory role on the deal.


WA-based conglomerate Wesfarmers has offloaded its 40 per cent interest in industrial gas producer and supplier ALWA and its associated interest in the Kwinana Industrial Gas Joint Venture.

The deal will see Wesfarmers receive a pre-tax profit of $95 million, with Liquide Australia (Air Liquide) claiming the stake. Air Liquide now claims full control of both ALWA and the Kwinana JV.

The deal comes as rumours continue to swirl around Wesfarmers’ insurance unit. It was speculated that Zurich Insurance Group was keen on the $2 billion asset but since negotiations broke down, Wesfarmers has reportedly been chasing several other leads.

At this stage a sale seems more unlikely than likely given there has been some traction in the division, but it certainly can’t be ruled out with this latest sale an indication the company is keen to focus on its core assets.

Senex Energy, AWE Limited

AWE Limited entered a trading halt on Friday ahead of the release of details of a “non-binding and conditional merger proposal”. According to The Australian Financial Review, fellow ASX-listed energy group Senex Energy is behind the bid, with the two reportedly negotiating a deal on Friday.

If a takeover goes ahead it would see the creation of a $1.5 billion company with Senex worth $881 million as of Friday and AWE valued at $619 million by the market.

The AFR said Macquarie Capital was advising the suitor while the target, AWE, was being counselled by UBS. More details are expected by Tuesday.

It appears good timing by Senex with its shares trading closer to their 52-week high than their low and AWE in the reverse situation.

Wrapping up

Warrnambool Cheese and Butter suitor Saputo has extended the deadline for its bid from last Friday until this Friday. The date coincides with the recently extended deadline of fellow suitor Bega Cheese, though expect both to stretch the deadlines further before the week is out.

Elsewhere, Japanese trading house Marubeni is the fourth bidder for Macquarie Generation, according to the AFR. The group will look to beat off known suitors AGL Energy, ERM Power and Shenhua Group when final offers are due on February 5 in the battle to control the state’s largest power generator.

Finally, the WSJ has suggested US mobile carrier Sprint could make a play for rival T-Mobile. The takeover would be worth upwards of $20 billion and combine the third and fourth largest telecommunications companies in America. Regulatory concerns will likely prove the biggest barrier.

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