A new kind of IR will take off when Qantas is de-listed.
Despite the need for final government approvals, it’s a done deal as far as the market is concerned. And what will take the deal over the line isn’t savvy IR – it’s price. But that does not mean IR was distanced from the A$11 bn private equity buyout of Australia’s national airline, Qantas. Quite the opposite.
As IR magazine went to press, a consortium of private equity houses led by Macquarie Bank was in the process of acquiring ‘the flying Kangaroo’. But while it may be private equity buying Qantas, some of the groups are public companies. And their IR efforts won’t end with de-listing Qantas; the airline’s iconic status will demand the partners sing in tune for years to come.
While many IROs are used to working in a team that involves another firm or two, these alliances are usually short term and expire once the deal is done. The difference in the Qantas deal is that it requires coordination between multiple partners for up to five years.
IROs from the three listed Australian groups already find themselves teamed up with counterparts from private North American ones. So far their job has been fairly easy. The consortium has offered shareholders a very healthy A$5.60 per share to bag Qantas, which is a huge premium. ‘The Qantas board has admitted A$5.60 is a price it can’t hope to achieve [in public trading],’ says Tom Elliott, CEO of hedge fund MM&E Capital, adding that Qantas shares generally trade between A$3 and A$4.
Given the high offer price, shareholders are expected to approve the deal, which will see Qantas de-listed. The Qantas board gave the consortium’s offer its imprimatur last year.
A new model
The consortium includes Australian investment houses Allco Equity Partners, Allco Finance Group and Macquarie Bank along with a group of North American private equity houses led by Texas Pacific Group and Canada’s Onex. Getting the deal done has seen IROs from all the partners working in tandem to ensure the market received consistent messages while also managing the flow of information between the consortium partners themselves.
Part of the challenge was making sure the listed companies – Macquarie and the two Allco entities – don’t fall foul of Australia’s continuous disclosure regulations. Under these rules, all listed parties involved in the deal have a duty to keep the market up to date about anything with the potential to impact their share price.
Once the deal is finalized, ‘some think Allco Equity Partners will trade as a pseudo-Qantas stock, creating an indirect IR market,’ says CommSec analyst Cassandra Meagher. In fact, a major part of the value of Allco’s share price will be tied to the performance of its investment in Qantas. There will have to be close contact with Qantas to ensure Allco can keep its shareholders informed of the airline’s progress. Qantas may be going private but it will still be in the public investor’s eye.
‘The advent of private equity doesn’t preclude the need for investor relations,’ says Meagher. ‘There are still lots of liaison points even if the deal gets done because the institutions that have financed the deal will want to know exactly what’s going on. There are real issues after the de-listing about how information is passed to investors.’
Some suggest the consortium’s partners will have even more onerous IR requirements than Qantas’ previous owners, who were mostly retail shareholders. ‘I imagine the investors will have contractual information requirements, and the role of investor relations is important to ensure information is consistent,’ Meagher points out.
At the same time, the consortium members will demand information from Qantas, and not just twice-yearly updates. The IR team at Qantas might find it is even busier once the deal goes through – and it will have to shift into a still higher gear if and when the prospect of relisting comes round.
Multi-party system
Although the A$5.60 offer price was a massive carrot for investors, Qantas and the consortium partners had to carefully structure the deal so that it received board, shareholder and regulatory approval, and also got the support of Australia’s highly influential trade unions. Simply put, the high offer price is not enough to make the deal fly.
Securing the approval of Australia’s Foreign Investment Review Board (Firb) was a key challenge. The consortium’s foreign partners will have a voting stake of 39 percent and an economic interest of 49 percent – just clearing the foreign ownership ceilings set by the Qantas Sale Act. ‘That said, airlines are a sensitive sector and the government will review the deal, although it’s not clear whether this will be a formal or informal process,’ Meagher says.
It is understood Australia’s Federal Treasurer Peter Costello wants to have the final say over the deal, and Macquarie directors have been sighted in Canberra, where Australia’s parliament sits, presumably buttering him up.
Unions are also stakeholders and need to be appeased. They have been vocal in seeking guarantees Australian jobs will not be lost overseas. They also want guarantees that in the event the company collapses, their entitlements will be honored by the government. And the government has to be sensitive to the unions’ demands as it’s an election year.
Still, it looks like the government will give the sale of Qantas the green light, albeit with concessions. Certainly the long positions that hedge funds have taken in Qantas stock show the market expects the deal to go ahead.
Retail therapy
One important factor that has driven Qantas’ IR strategy is the company’s status as a national icon. Australia’s isolation from the rest of the world also makes a viable national airline a necessity; most Australians would be horrified if Qantas were to be domiciled offshore.
Perhaps most important in retail shareholders’ decision to support the bid will be assurances from the new owners that the company’s popular loyalty program will continue. Australians are obsessed with frequent flier points and, says John Curry, chairman of the Australian Shareholders’ Association, ‘retail shareholders are supportive on the basis that things they value – like frequent flier points – don’t get lost.’
Assuming the deal wins shareholder and government support, it will be interesting to see how the different players coordinate their messages. ‘This is the first of many similar deals,’ predicts Meagher, adding that such private equity deals are not new, but what is new is the scale of the Qantas deal and the involvement of multiple partners.
The IR community in Australia will be watching closely to see how the consortium communicates Qantas’ performance to the market after it has de-listed. Analysts have been impressed so far with how information has been fed to them. Let’s hope this continues.