Australia's Qantas Airways agreed on Thursday to a sweetened AUD$11.1 billion (USD$8.7 billion) buyout offer from a group led by Macquarie Bank and private equity firm Texas Pacific Group in the world's biggest airline takeover.
The sale of the national icon, dubbed the flying kangaroo, has stirred national sentiment and reached the highest levels of Australian politics, prompting the bidding group to stress that the airline would remain majority Australian owned.
However, Prime Minister John Howard signaled the government was unlikely to interfere in any change of hands of the airline, founded 86 years ago in outback Queensland as an air taxi service.
"I hope that the Qantas we know is the Qantas we keep. People like Qantas. It is an icon. That doesn't mean to say its shares can't change hands," Howard told Australian Broadcasting Corporation radio.
The offer tops an USD$8.6 billion bid for bankrupt Delta Air Lines by US Airways in November, and would be the biggest private equity buyout in Asia, outside of Japan, if approved by shareholders early next year.
It coincides with a wave of consolidation talk across the industry, including recent merger talks between UAL, parent of United Airlines, and Continental Airlines.
The offer of AUD$5.60 a share, 10 percent above Qantas's last trade on Wednesday, was unanimously endorsed by the Qantas board after the bidders dropped a demand for a break fee and simplified other conditions. The board rejected an offer of AUD$5.50 on Wednesday.
Qantas shares, publicly traded since 1995, stayed below the offer price all day, suggesting investors were not going to hold out for a better bid. The shares closed up 3.7 percent at AUD$5.28 after touching a record high AUD$5.37.
The offer price is 29 percent higher than Qantas's share price before the airline said on November 22 that it had been approached with a buyout offer.
Looking to reassure politicians and unions, the bid team Airline Partners Australia said it had no plans to break up Qantas, send its maintenance operations offshore, or cut regional Australian routes.
Qantas Chief Executive Geoff Dixon refused to bow to a union call for the new owners to guarantee existing jobs and entitlements of Qantas workers. But he did say the new owners do not plan to speed up the airline's drive to cut a further AUD$1.5 billion (USD$1.17 billion) in costs over the next two years.
The bid values Qantas at a 61 percent premium to its average share price in the six months to November and at 15.9 times forecast earnings for 2007, compared with regional rivals Singapore Airlines trading at 12.9 and Cathay Pacific Airways at 17.8.
The bidding team has been carefully shaped to ensure it meets ownership caps on Australia's flag carrier, which require the airline to remain majority Australian-owned, with no individual shareholder owning more than 25 percent.
The airline will be 27 percent owned by Allco Equity Partners, with Texas Pacific Group owning 25 percent, Allco Finance Group 8 percent, Macquarie with less than 15 percent, Canadian investment firm Onex 12.5 percent and other foreign investors combined with 11.5 percent. Voting stakes are slightly different.
Qantas management will hold 1 percent, with Dixon, 66, staying on as chief executive for at least the next three years.
All the key members of Airline Partners have been involved with the airline industry. Allco Finance's directors include former British Airways chief executive Rod Eddington and former Cathay Pacific chairman David Turnbull.
Allco Equity Partners said that it would raise AUD$682 million to part fund its share of the acquisition, which would see it become Qantas's largest shareholder.
The consortium did not give any other details on how it would fund the deal, but said it would keep AUD$2 billion in cash on Qantas's balance sheet.
Market sources suggested at least AUD$8 billion to AUD$9 billion of the acquisition would be funded by debt.
The consortium was talking to Calyon and Morgan Stanley to provide a combination of loans and bonds. The package will also involve the securitisation of Qantas' assets, said a market source who declined to be identified.
The government has only once before blocked a takeover on national interest grounds, stopping Royal Dutch Shell buying Woodside Petroleum, on fears that Shell would develop offshore projects ahead of Woodside's local gas projects.
The consortium will have to win over the US and European arms of US fund manager Capital Group, which together own 12.7 percent of Qantas, as the bid is conditional on securing 90 percent acceptance.
