UBS buys blocking stake in Qantas

TPG and Macquarie’s troubled bid to take Australian airline Qantas private has taken another twist, after news emerged that UBS has acquired a blocking stake.

The A$11 billion ($9 billion) private equity bid for Qantas, Australian’s biggest airline, took another twist today after Swiss bank UBS increased its stake to more than 10 per cent – giving it the power to block any bid.

UBS said in a regulatory filing that it had increased its stake from 8.9 percent to 10.4 percent. The consortium trying to buy Qantas, which includes Australian bank Macquarie and US buyout firm TPG, needs at least 90 percent of shares for its bid to be successful.

Since UBS is reportedly opposed to the bid, this suggests the buyout consortium – which also includes Australian investor groups Allco and Onex – is highly unlikely to receive the level of shareholder support it needs.

However, the Swiss bank’s share purchases also mean that it would be in line for a substantial gain if it did decide to accept the consortium’s offer. In yesterday’s trading, the Qantas share price dipped as low as $4.95 before closing on $5.09, up 3 cents for the day. If UBS bought its shares in this range – and the price could have been lower – accepting the consortium’s bid would allow it to generate an instant profit on its investment.

The bid had been thrown into doubt last Friday when Balanced Equity
, an Australian fund manager with a 4 percent stake, publicly rejected the $5.45 per share bid as being too low.

The Airline Partners Australia consortium, which has so far received acceptances representing 30 percent of the total shareholding, has since been working hard to reassure investors.

Spokesman Bob Mansfield said: “50% of Qantas shareholders (by number) have already accepted the APA offer and many thousands have sold their shares on market at prices substantially lower than APA’s $5.45 offer, providing further confirmation that the APA offer represents attractive value. The fact that one institutional shareholder has declined the offer in no way deters us from successfully completing this transaction with the overwhelming majority of shareholders who support it.”

Mansfield insisted that the offer represented “attractive value at a time of increasing competition in the volatile aviation sector”, adding that the share price would be likely to fall if the bid fell through.

However, he admitted the consortium was “actively considering a range of options to ensure successful completion of its offer”. This may include trying to drop the 90 per cent acceptance condition, although this would probably force it to change the structure of its proposed debt package. It has so far insisted that the current offer price is final and will not be increased.