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Qantas shares rocket on sale rumour
Even though the market is reported to be sagging, Qantas shares have moved strongly the other way as a result of rumours that the airline is likely to be subject of a Macquarie-led private equity raid.
Qantas shares reached a four year high, closing at $4.33, up 11c, after trading as high as $4.37 during the day although volume was not high
Macquarie Bank sources could not comment whether the rumours were true, with Investment Managers saying Qantas is a very tough proposition for a private equity player as a cyclical industry with high fixed costs. However, it does have a conglomerate structure so they could on sell some parts.
There has been speculation that any buy-out would see assets such as catering, maintenance operations, airline terminals and wholesale travel operations sold off, but Qantas does not fit the typical mould for a private equity target, with private equity usually buying assets with a steady cash flow that can be geared up and on sold.
The airline business is notoriously cyclical, with fuel prices and international events dramatically affecting performance with a credit analyst saying that even if Qantas were a steady industrial or infrastructure company, it would probably not meet the requirements of private equity investors as a private equity deal is considered feasible if the existing debt is less than overall cash flow minus capital expenditure multiplied by nine. In Qantas’ case the cash flow minus capex figure is $520 million, which if multiplied by nine comes to $4.6 billion, with Qantas’ balance sheet debt standing at $5.3 billion, already above that figure before adding in aircraft leasing liabilities, which are perhaps as much as $6 billion.
With debt levels like that, private equity investors could not increase leverage, adding “The bid would have to be all equity, so why would you do it?”
Despite the worldwide private equity boom, the airline business has been pretty much ignored by the sector with Qantas valued at $8.5 billion on the sharemarket after rising from $5.9 billion in June.
That increase and the existence of foreign ownership restrictions are seen as further impediments to a private equity purchase.
Report by The Mole
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