DataRoom AM: Qantas tailspin

If Qantas Airways was pinning its hopes on a government guarantee or cash injection it is likely to end sorely disappointed. Instead, the national carrier needs to assess other ways to dodge a credit rating downgrade and most likely that will mean asset sales. But the clock is ticking.

Elsewhere, the listing of Veda Group shows a healthy IPO market, Nine Entertainment gears up for its addition to ASX boards, Warrnambool Cheese and Butter awaits more details from suitor Murray Goulburn and Westfield Group makes a big US buy.

Qantas Airways

Qantas Airways is having a difficult time of it, with news yesterday it is staring down a first half loss of $300 million sending its shares 11 per cent lower. But the bad news didn’t end there, with job cuts, a threat of a credit rating downgrade and news of the government backing away from requests for aid.

Indeed, transport minister Warren Truss appears to have all but ruled out offering a debt guarantee or financial assistance to the national carrier amid rumours many senior government ministers are against such a proposal.

"The government isn't a banker," Truss warned saying the best way it could help was to promote economic growth.

He also put the likelihood of a change to the Qantas Sale Act as slim given resistance from Labor and the Greens.

With Moody’s placing the group on notice over its credit rating something has to give, with asset sales more than likely in the near-term to go alongside further cost reduction moves.

There has also been idle speculation this week that the national carrier may spin-off either its frequent flyer business or its Jetstar Asia business. The problem with the former is that losing control of the frequent flyer program makes it challenging to run as the company would like. It should also be noted that such plans have been mooted on several occasions with nothing ever eventuating.

The issue with the latter is that Jetstar Asia is a rare beacon of light. It would be a bold chief executive who spun off a growth business, but desperate times may call for desperate measures and nothing can be ruled out.

In the meantime Virgin Australia, with the backing of three major overseas airlines, is looking the stronger of the two domestic players – a notion that would have been crazy just a few short years ago.

Ironically, for all the talk of Virgin strength, it didn’t actually make a profit last year (Qantas did, believe it or not). This year will likely see red ink flow at both companies in yet another sign that airlines are rarely a good investment.

The airline sector is often cited as a rare surviving industry where cumulative profits over time have been negative.

IPO market, Veda Group, Nine Entertainment

Concerns over have been put off for at least one more day after credit checking company Veda Group hit ASX boards with a bang yesterday. The private equity-backed group surged 40 per cent, putting worries over the IPO market to bed for now.

Earlier this week the Industria REIT and Dick Smith Holdings floats were met with a muted reaction. However, they weren't considered the cream of the IPO crop and Veda's debut brought back memories of the strong recent beginnings of OzForex, Virtus Health and Freelancer.

The surge for Veda saw its value climb around $400 million, which would have pleased majority shareholder Pacific Equity Partners given it has retained a 63.5 per cent shareholding in the now listed entity.

The IPO, managed by Citigroup and UBS, raised $341.1 million through the sale of 272.8 million shares at $1.25 apiece. The shares closed at $1.75 yesterday afternoon, with the company now valued at $1.4 billion.

Shares in Dick Smith Holdings, meanwhile, are now above their listing price after gaining 2 per cent yesterday. They closed flat on their first day of trade on Wednesday.

Now all eyes turn to Nine Entertainment, which will join the ASX later today. There are high hopes that it will be another good day for the IPO market, with the media group’s decision to price at the bottom of its range – which ensured an oversubscribed bookbuild – meaning it should begin the day with green numbers.

Elsewhere, speculation continues to swirl around a possible listing of Healthscope next year. According to the Australian Financial Review, the private hospital operator is testing the appetite of investors for a float of as much as $4 billion next year, though it still appears to be very early days in the process.

Should potential investors be receptive then a listing could be expected in either the second or third quarter of 2014, the report suggested.

Warrnambool Cheese and Butter, Saputo, Murray Goulburn, Bega Cheese

Warrnambool Cheese and Butter remains uncertain on the latest offer put forward by suitor Murray Goulburn, continuing to advise shareholders to take no action at the current time.

Murray Goulburn upped its bid to $9.50 a share in November, trumping rival offers from Saputo and Bega Cheese, but it is struggling to convince the WCB board of its worth.

The suitor has been successful in getting the Takeovers Panel to force Saputo to cease receiving acceptances for its board-approved bid on the grounds the Canadian dairy firm’s latest bid may have been misleading. But WCB is reportedly still awaiting the finer details of the MG bid, which will likely show off job cuts given the none-too-subtle headline in its report to the Australian Competition Tribunal of “Confidential: Reduction of head count”.

Murray has sought an alternative regulatory clearance approach to its rivals, going via the Competition Tribunal rather than the ACCC. But while its report to the tribunal has been made public, the confidential details within it have not even been released to WCB.

“A non-confidential (redacted) version of MG's application was publicly released on the tribunal’s website on the evening of December 3. The WCB board is currently reviewing this document with the assistance of its legal advisers,” the company advised.

“Confidential versions of the application and supporting materials have still not been made available to WCB by MG.”

WCB said it would “seek leave” to participate in the tribunal process, with the first case management conference relating to MG's application before the tribunal on December 9. A public hearing is slated to begin on February 10 next year and a decision is considered likely to be three to six months away.

In the meantime, WCB has again cautioned shareholders not to accept the offer from Bega while adding it would not comment on the Saputo bid until the Takeovers Panel review is complete.

The upshot is this battle is almost certain to run into the New Year.

Westfield Group, Westfield Retail Trust

While the market offered little support for Australia’s largest ever corporate restructure the morning after the day before, Westfield Group was already looking ahead.

The company has purchased the 50 per cent stake it did not hold in the retail precinct at New York's World Trade Center site.

The precinct will be part of the company’s international spinoff – Westfield Corporation – with the move to full ownership costing $US800 million ($A879 million).

The company’s total investment at the site now runs to $US1.4 billion.

Shares in Westfield Group and Westfield Retail Trust, the two companies at the centre of the restructure, fell over 2 per cent yesterday.

BlueScope Steel

BlueScope Steel has received a mixed view from the Australian Competition and Consumer Commission over its acquisition plans.

The regulator has approved the steel group’s planned takeover of Orrcon Steel, but has called for comment on its proposed buyout of steel products maker Fielders in light of competition worries.

The two takeover targets are both owned by Hills Holdings, which is set to pocket $87.5 million.

Wrapping up

Wesfarmers has reportedly walked away from an insurance deal with Zurich Insurance Group. According to the AFR, Wesfarmers had been pursuing a multi-billion dollar sale of its insurance division to the Swiss-based group but the deal has now fallen through on disagreements over the company’s worth.

In IPO news, energy explorer Tamboran Resources, which was started by Eastern Star Gas founder Pat Elliott, is likely to pursue a float worth over $200 million around the middle of next year, according to the AFR.

Finally, Carabella Resources has confirmed it has received a takeover offer from China’s Kingho Energy Group. The ASX-listed group has hired UBS to assess whether other “interested parties” would be willing to offer more than the current $66.4 million proposal it has on its desk.