March 23, 2023

DealBook: Wary of a Takeover, Qantas Hires Macquarie

HONG KONG — Qantas Airways of Australia has hired the investment bank Macquarie to provide advice on fending off potential hostile takeover bids after its shares plunged to their lowest levels since the company was privatized in 1995.

Thomas Woodward, a spokesman for the airline, said on Tuesday that hiring Macquarie was a defensive move in case private equity groups or others attempted a takeover. He declined to elaborate on the decision.

Qantas, based in Sydney, could be vulnerable because its shares have declined 26 percent this year as the carrier struggles with high fuel costs and increased competition at home and on international routes.

Speaking in Beijing on Tuesday at a meeting of the International Air Transport Association, Alan Joyce, the chief executive of Qantas, said the airline had not been approached with offers but was preparing for “a whole range of scenarios,” the Australian Financial Review reported.

Shares in Qantas fell more than 18 percent on a single day last week after the company announced that it expected to book a pretax loss of more than 450 million Australian dollars in its international unit in the financial year ending this month. Analysts expect Qantas to record an after-tax net loss from all operations of 230 million dollars ($228 million), its first annual net loss in more than a decade.

Qantas has seen yields on its revenue eroded as it battles lower-cost competitors at home, mainly Virgin Australia, while on long-haul overseas routes it faces ongoing challenges from rival Asian and European carriers. Slumping demand because of the euro crisis, high oil prices and a persistently strong Australian dollar have also weighed on its results.

The airline has also been hampered in recent months by a series of labor disputes, including one that resulted in a two-day shutdown in October. The forecast losses for the current financial year include a charge of 100 million dollars related to industrial action.

Last month, Qantas announced a restructuring plan, splitting its domestic and overseas businesses into separate units in a bid to engineer a turnaround in its international operations by cutting costs and reconfiguring its fleet.

‘‘With the deterioration in inbound travel demand as well as increasing domestic yield pressure, there is much resting on the turnaround of the international business, not least from the ratings agencies,’’ analysts at Credit Suisse in Sydney wrote last week in a research note.

The ratings agency Standard Poor’s put Qantas on watch last week for a one-notch downgrade, to one level above noninvestment grade. The airline’s rating had already been downgraded to that level by Moody’s Investors Service in January.

Qantas had been targeted for a takeover in 2006 by a consortium of investors led by Macquarie and the private equity group TPG Capital of the United States. That deal, which valued the airline at more than 11 billion Australian dollars, ultimately failed to win approval from shareholders.

The airline, moreover, is subject to strict ownership regulations that cap foreign control at 49 percent, meaning Australian parties would have to play a majority role in any takeover bid, and such a transaction would be subject to multiple regulatory approvals.

Shares in Qantas rose 10.8 percent on Tuesday, to 1.08 dollars, after the company confirmed hiring Macquarie to defend against a takeover, leaving it with a market value of 2.4 billion dollars. On Friday, the stock had slumped to a record low of 97 cents, almost half the price of 1.90 dollars a share at which the Australian government floated its 75 percent stake 17 years ago, when it privatized Qantas.

Analysts said the airline’s decision to steel itself against a takeover before any offers had materialized could be read in several different ways.

“It could be they think there is potentially someone coming at them,” said one Australian airline analyst who declined to be identified because he was not authorized to speak to the media. “From a cynical perspective, given the way their shares are down, it could also be a way of saying in the public domain they think they are undervalued.”

Part of Qantas’s recent strategy has been to focus on budget travelers in Asia, announcing plans in March to establish a new low-cost carrier in a $198 million joint venture with China Eastern.

Called Jetstar Hong Kong, it is scheduled to begin service next year and will operate short-haul flights around the region, including to mainland China, Japan, South Korea and Southeast Asia.

Qantas’s low-cost Jetstar brand already operates successfully in Australia and New Zealand and has expanded its footprint to Southeast Asia by flying out of Singapore and Vietnam. A Japanese operation, Jetstar Japan, is poised to begin service next month.

This post has been revised to reflect the following correction:

Correction: June 12, 2012

An earlier version of this article misstated the nature of anticipated losses at Qantas. A pretax loss of more than 450 million Australian dollars is expected in its international unit, not the entire company, which analysts expect to report an after-tax loss of 230 million dollars in the financial year ending this month.

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