KEY POINTS:
The A$11.1 billion attempt to win control of Australia's national airline Qantas is in danger of nose-diving as efforts to gain a reduced stake within an extended deadline fail to shake loose the shares the bidding consortium needs.
The most recent target statement, given on Tuesday, shows that
Airline Partners Australia's holding has slipped marginally, from 30.6 per cent to 28.86 per cent.
Its hopes are now focused on hedge funds waiting for rising share prices to release the 40 per cent they hold.
This would push APA's stake close to the 70 per cent now required under revised conditions announced last week after agreement with the banks financing the bid.
Under the original offer, APA sought 90 per cent of the airline, allowing it to compulsorily acquire the remaining stock and giving its bankers the security of all Qantas assets and its cash flow.
But with the bid dragging on - the deadline has been extended a second time, to May 4 - and the target continuing to elude APA, Qantas is beginning to show impatience and has warned of higher debt costs under the new offer.
In a statement to the Australian Stock Exchange, Qantas chairwoman Margaret Jackson noted that more than four months had passed since the consortium's initial announcement of its intention to take over the airline.
"In the best interests of all Qantas stakeholders, the independent directors believe APA must take steps to bring the offer to a conclusion as soon as possible," she said.
Despite concerns that APA's offer undervalued the airline, prompting two shareholders to refuse to sell their combined holdings of more than 10 per cent, the eight independent directors continue to support the sale.
"No superior proposal for Qantas has emerged, nor do the independent directors have an expectation that one will emerge," Jackson said.
"In addition, each independent director has accepted or otherwise confirms his or her intention to accept APA's offer in respect of their Qantas shares, in the absence of a superior proposal."
The independent directors say the bid places a value on the airline's shares that is higher than they have ever traded, and is a significant premium.
But APA, a consortium of Australian, US and Canadian investors led by Macquarie Bank and Texas Pacific Group, continues to struggle.
Its original offer, which depended on the 90 per cent acceptance required by a banking syndicate of Deutsche Bank, Citigroup, Goldman Sachs, Morgan Stanley, Credit Agricole/Calyon and Royal Bank of Scotland, collapsed because of the refusal of UBS Nominees and Balanced Equity Management to sell their shares.
The revised offer has failed to break the impasse.
It reduced the required level of acceptance by 20 per cent, requiring a new debt package and the intention to pay dividends of A$1.5 billion from the airline's retained earnings, with a capital return of A$2.5 billion within its first year of ownership.
APA said when it announced its new offer that while it had not finalised its intentions, the present expectation was that this might involve capital reductions of up to about A$4.5 billion in aggregate, and payment of dividends of up to 100 per cent of retained earnings.
The Qantas statement urged caution, as it had previously considered similar increased debt and capital management proposals but had rejected them because of the risk.
It also warned that APA's plan could reduce the airline's long-term corporate credit rating from investment grade to speculative or non-investment grade.
As Qantas made its statement, UBS Nominees reported that it had increased its Qantas stake from 10.4 per cent to 11.4 per cent.
APA, meanwhile, attributed the decline in acceptances on the withdrawal of American investors wanting to sell shares as the value of Qantas stock and the Australian dollar rose.
Troubled bid
* Airline Partners Australia needs 70 per cent of shareholder acceptances to proceed under revised conditions.
* It now has 28.86 per cent.
* The closing date for the offer has been extended again, to May 4.
* Qantas' independent directors continue to support the sale.