Qantas has agreed to an A$11.1bn (US$8.7bn) takeover offer by a consortium including Australia’s Macquarie Bank and Texas Pacific Group, a US buy-out fund.
The airline rejected the consortium’s opening offer on Wednesday but early on Thursday it recommended a sweetened A$5.60-a-share offer.
Shares in Qantas jumped nearly 5 per cent to A$5.33 by early Thursday afternoon. The buy-out offer is 29 per cent more than the stock traded at November 21, when Qantas first said it had been approached.
Margaret Jackson, chairman, said Thursday that, subject to receiving an opinion by independent expert Grant Samuel, the non-executive directors unanimously intended to recommend the bid.
The move coincides with upheaval in the airlines industry in the US. Northwest Airlines is expected to use its right to block any proposed merger between Continental and United, derailing attempts to advance talks to create the world’s largest carrier.
A Qantas sale would require government approval and must be backed by investors holding more than 90 per cent of the airline’s equity. Capital Group of the US is the largest shareholder, with 12.8 per cent.
If endorsed by investors, the agreement would mark one of the biggest aviation deals in history and follows a spate of multi-billion dollar buyouts in Australia this year.
Geoff Dixon, Qantas’ chief executive hit out at a warning by Moody’s Investor Service Wednesday that it might downgrade its rating on the airline’s debt to junk status in the wake of the buyout. “I believe the statement that was made was right out of line,” he told reporters. “I do not believe it has any validity at all.”
The agreement follows a day of drama in Australia on Wednesday that began with the airline rejecting the consortium’s opening offer of A$5.50 a share, which valued Qantas at A$10.9bn.
Qantas’s non-executive directors said “the terms of the proposal are not acceptable” as these included “complex conditions” such as a break fee payable to the consortium.
This unexpected rejection sparked a day of talks between Qantas executives and representatives of the consortium. The private equity groups dropped some of their conditions and raised the offer price by 10 cents to A$5.60.
The consortium is understood to have dropped the demand for a break fee, set at A$100m, in theory freeing Qantas to entertain rival buy-out approaches.
Macquarie confirmed a report that the consortium, called Airline Partners Australia, would be majority-Australian owned. Lawmakers have been concerned about the possible buy-out. The airline is subject to ownership restrictions that limit foreigners to a combined 49 per cent stake.
Macquarie said it would own less than 15 per cent, with local rivals Allco Finance Group taking 11 per cent and Allco Equity Partners the biggest single investor with 34 per cent. Offshore investors would hold less than 40 per cent, with neither Texas Pacific nor Canada’s Onex holding more than 15 per cent.