DataRoom AM: Qantas delay

The fate of Qantas’ frequent flyer decision is still up in the air, while Cheung Kong Infrastructure has thrown APA Group’s Envestra bid into doubt.

Qantas Airways provided a fresh glimpse into its turnaround plans yesterday, but one big question remains unanswered -- and it could stay that way for several months.

Elsewhere, Cheung Kong Infrastructure makes a big play for Envestra, Aquila Resources prepares to officially rebuff Baosteel’s takeover proposal and Goodman Fielder gets its suitor offside.

The restructure of Qantas Airways re-entered the limelight yesterday as the airline announced a fresh batch of job cuts. However, we appear scarcely closer to a decision on the company’s frequent flyer division.

The loyalty operations of the national carrier have been the most consistent profit producer for the airline in recent years and are being weighed up for a partial divestment by Qantas given their worth. But a valuation of $3.5 billion for the frequent flyer division does not marry with the $2.7bn market cap of the group as a whole and is just part of the reason boss Alan Joyce yesterday described the ongoing assessment of a sale as a “huge and complex issue”. A decision is likely still months away.

APA Group has been struggling to get backing for its takeover proposal of Envestra and it’s likely to get tougher now as a rival bid emerges. The target entered a trading halt yesterday morning ahead of news that large shareholder Cheung Kong Infrastructure had made a play of its own.

The CKI bid of $2.37bn trumps the $2.2bn-plus offer of APA and is likely to appeal more to investors given the larger cash component of the deal. It also has the advantage of already owning 17.5 per cent of APA stock, with the Foreign Investment Review Board and a potential counterbid from APA likely the only things standing in the way of CKI and full control of Envestra.

Meanwhile, Aquila Resources may today formally reject the initial overtures of suitors Baosteel and Aurizon, according to The Australian Financial Review. Aquila has hinted it will knock back the current $3.40 a share offer, but board discussions have been ongoing following the unsolicited proposal on the weekend.

Expect Baosteel to come back with a higher offer, but Aquila founder Tony Poli -- who holds 28 per cent of the firm’s stock -- may not be receptive. If the bidders can’t draw him to the table they will need to drum up significant support elsewhere to drive their shareholdings above 50 per cent and the AFR expects at least one key stakeholder -- M&G, which owns 13 per cent – will play ball.

Stock in Aquila yesterday closed at a year-long high of $3.42.

The Australian Securities Exchange failed to cement a merger with its Singapore counterpart in 2011 when then Treasurer Wayne Swan blocked it on national interest grounds and it seems a deal is as unlikely now as it was after that decision. According to the AFR, the chief executive of Singapore ExchangeMagnus Bocker, has talked down the prospect, arguing that many of the compelling reasons for a tie-up are “not there anymore”.

Elsewhere, Goodman Fielder’s decision to pursue a sale of its New Zealand dairy assets has riled suitor Wilmar International, with the Singaporean firm threatening to walk should the divestment proceed. Given the Goodman board’s reluctance to engage on the $1.27bn takeover offer, the food manufacturer may not be too disappointed if that were the case. It would, however, put great pressure on the company’s share price.

In finance, Pepper Australia -- an underbidder in a few high-profile local asset sales in recent months, including the Australian assets of both Lloyds and Investec -- is hoping for better luck in Hong Kong as it joins the race for Prime Credit, a subprime lender owned by Standard Chartered. Second-round bids are due as early as this week and the Australian financial institution may need to bid as much as $700m to claim its target.

Finally, mining giant BHP Billiton has agreed to a $US6bn revolving credit facility with Deutsche Bank and Royal Bank of Scotland.

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