QAN $11 Billion Bid Goes To FIRB

By Glenn Dyer | More Articles by Glenn Dyer

Federal parliament resumes this week for 2007 and you can bet that Iraq, water, climate change, industrial relations and the federal election will be on everyone’s lips and press releases.

But there will be one issue that will stand head and shoulders above all of them: the $11 billion buyout of Qantas by a group of local and foreign investors, and a pod of 11 senior managers led by CEO, Geoff Dixon.

The release on Friday of the bidder’s statement by Australian Airline Partners, the group set up to carrying the assault, has only served to sharpen adverse comment about the deal, especially the position of the management team.

More and more it is looking like a management buyout and little else.

The bidder’s statement revealed 11 Qantas executives would receive incentives and bonuses equal to a 5.5 per cent stake in the new company; that they would get a limited recourse no interest loan of half a billion dollars to build this stake (meaning it won’t cost anything and the loan might necessarily not have to be repaid). Their present holdings of $36 million worth of shares would be tipped into the bid as the basis for the start of their stake.

All in all it’s a highly advantageous arrangement for the management team which makes the deal smell more like an MBO rather than a LBO. It is of course a combination of that.

Federal politicians have been quick to realise this and the criticism on Friday and over the weekend of the arrangements was pointed and worrying for APA who will want as little do with Canberra as possible.

Federal Greens leader, Senator Bob Brown wants a Senate inquiry into the bid. Don’t be surprised if this becomes a happing thing: it’s an easy way for the Prime Minister and Peter Costello to have an inquiry without their fingerprints on it.

One MP who is critical is Sydney Federal Liberal member Bruce Baird whose electorate just south of Sydney Airport contains an estimated 4500 Qantas employees.

Mr. Baird said on Friday he would be raising the issue with fellow coalition MPs this week.

Another who is critical and has been since the deal was announced late last year is Queensland National Party Senator, Barnaby Joyce.

He said on Friday that the executives who would take on the bonus to resign, claiming that they wouldn’t be impartial.

“As soon as they accept that, they are no longer impartial in the process and should step down from any executive position,” Senator Joyce reportedly said.

And yesterday Federal Labor bought into the situation, sensing a chance to embarrass the government.

The ALP said the private equity consortium seeking to buy Qantas should submit details of its bid to the Foreign Investment Review Board (FIRB).

Labor’s treasury spokesman Wayne Swan called for Treasurer Costello to encourage the consortium to seek such a referral.

Mr. Swan However acknowledged his opportunism when admitting in a statement that the Airline Partners Australia’s bid for Qantas was structured to meet the requirements of the Qantas Sale Act, the Airports Act and the Foreign Acquisition Takeovers Act.

And last night APA said it would make a voluntary referral to FIRB.

Inflaming the issue for many sceptical of the deal is the presence of 11 of the QAN executive team in the bid, led by CEO Dixon and the airline’s chief finance officer Peter Gregg.

Mr. Dixon has said he would donate a personal windfall of up to $60 million from the takeover to indigenous charities. But in the meantime he would be entitled to a base salary of $2 million a year and bonuses of up to another $4 billion.

APA will put aside more than $160 million to fund executive incentive schemes over the next five years and executives will be able to buy shares at a strike price of $5.60 if they stay with the company or achieve performance goals set by the consortium.

Other executives in line for rewards include the airline’s executive general manager John Borghetti, the head of maintenance David Cox and general counsel Brett Johnson.

Qantas shares rose 2 c to $5.39 on Friday.

While they were being generous to the management team APA was blunt in spelling out “no more” to shareholders: the $5.60- a share offer is final.

The group plan a $10 billion re-equipment program (much of which was put in place by the existing board and management) and will keep a ‘kitty’ of up to $2 billion in cash and liquid investments to help in the event of an industry turn down.

The group kept talking about the long term but that’s a misnomer: its a three to five year timeline for this deal from this year and the pot of gold for APA and managers will only come when the airline is refloated somewhere along that timeline.

Sounds a bit like a pump and dump scenario except the airline will be unlisted while its being ‘pumped’.

A point to keep in mind in Canberra is that the Qantas deal has become entangled in the still present leadership tensions of Mr. Howard and Mr. Costello: Costello is the responsible minister but Howard runs the Government.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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