DataRoom AM: Qantas’ strategic loyalty

Qantas may be considering a demerger of the airline’s only consistent performer, while the future of Roc Oil and Horizon Oil’s merger is in doubt.

Qantas Airways has a valuation problem if it wants to hive off part of its loyalty business, but has it found an acceptable solution for shareholders ahead of the release of its strategic review?

Elsewhere, big-name buyers circle Lorna Jane, advisors mull options for asset sales at Pacific Brands, Syrah Resources becomes the subject of intense takeover speculation and the Horizon Oil-Roc Oil merger is at the crossroads.

The eagerly awaited results of Qantas Airways’ strategic review are due next month, with all eyes on the firm’s Loyalty business. The frequent flyer division has been the only consistent performer for the airline in recent times and is potentially worth as much as $3.5 billion based on its most recent profit numbers. As we have mentioned previously in this column, that number doesn’t match with Qantas’ market cap of just $2.65bn, which means any sale would likely undervalue the business.

Given the potential for shareholder backlash, it’s no surprise that rumours in The Australian Financial Review suggest the airline is now strongly considering a demerger of the business, which would allow shareholders to retain a stake in both the airline and the loyalty division.

Meanwhile, it could be curtains for the $800 million merger between Horizon Oil and Roc Oil, with the latter receiving a second unsolicited offer from a third party. Reports yesterday that one of the bidders was Malaysia’s Cliq Energy have been refuted, meaning that its declaration of interest could yet see another bid emerge in coming days.

As it stands two unnamed firms have been given access to Roc’s accounts in order to assess whether they will put a final bid through to the target’s board. The Australian Financial Review reported that the latest bidder is a private equity firm, while the former is believed to be an Asian-based firm.

In retail, the sale of women’s sportswear maker Lorna Jane has drawn first-round bids from Foot Locker and private equity firms Advent International and Bain Capital, among others. The auction process is still in its early stages, with a sale price potentially rising as high as $500m.

Also in retail, the Macquarie Capital-led review of Pacific Brands is progressing rapidly, with the advisor believed keen to press for a sale of Pac Brands’ workwear division. According to the AFR, the KingGee, Stubbies and Hard Yakka brands could be on the block, with UK-based Bunzl, private equity firm Champ Ventures and local conglomerate Wesfarmers considered prospective bidders.

In mining, shares in Syrah Resources, one of the year’s hottest stocks, surged again yesterday on reports Glencore had approached the graphite miner with a takeover proposal. However, while the firm admitted it had received interest from suitors, it said it had not engaged in formal discussions with any interested party to this point.

Elsewhere, the race for SAI Global has only one contender at the moment, with a joint bid from KKR and Pacific Equity Partners, potentially around the $1.1bn-$1.2bn mark, the only confirmed offer ahead of a bid deadline next week, the AFR reports. It is believed KKR sought out initial lone bidder PEP as a partner due to the short time it had to conduct due diligence.

Finally, the federal government is calling for banks to put their hands up if interested in a co-lead manager or co-manager role on the $4bn float of Medibank Private. They would serve alongside already appointed joint lead managers Deutsche BankMacquarie Capital and Goldman Sachs.

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