Men Who Killed Qantas - Matthew Benns [70]
Those shareholders seemed to be getting restless. Nowhere near enough of them were pledging their shares to the new consortium. To help things along, APA offered brokers $750 cash for every Qantas client they got to accept the deal. It extended the acceptance period from 3 to 20 April. But the big hedge funds were not convinced. UBS Global Asset Management, which controlled six per cent of Qantas, was doubtful. Balanced Equity Management, which controlled four per cent of Qantas, sent the airline a binding fax saying it would not accept the bid because the sharemarket value had gone up since the offer was first made. Tasmanian Liberal Senator John Watson said: ‘I just say good luck to [Balanced Equity] – they’re doing a good job. Everyone seems to want to get rid of Qantas except a few thoughtful people.’14
One person who was not being too thoughtful at the time was chairman Margaret Jackson. In hospital with her arm elevated and in a sling, she decided to speak to the media to help things along. ‘I would be devastated if [the bid] didn’t go through as this is an outstanding opportunity for shareholders,’ she said.15 Warming to her theme, she warned that 40 per cent of Qantas shares were held by hedge funds that would dump them if the deal did not go through. She said the airline would be ‘destabilised’ as the market scrambled to find the $5 billion of equity dumped by the funds. ‘If anyone thinks this will happen without affecting the share price then they have a mental problem with how the market works.’16
Whoops. Nobody, particularly shareholders, it seems, likes to be condescendingly told they have a mental problem for not doing what the chairman thinks is best for them. ‘They weren’t the best sentences I have uttered in my life, but my concern for shareholders was genuine,’ she said when the dust had settled, more than a year later.17 Appalled suits in the financial sector believed she had gone too far. They argued it was not her job to be spruiking enthusiastically on behalf of the bidder. ‘I don’t think I was a lobbyist or barracker for APA,’ she said. ‘I recommended the bid, as did the board, because we thought it was good at the time for shareholders.’18
The problem with the deal, which was viewed with deep suspicion by the Australian public and gained little political support, was the fact that it saddled the airline with a massive debt. The executives would walk out with bucket-loads of cash and the airline would be left to keep operating while struggling under a giant burden of borrowed money. The global financial crisis two years later would destroy companies taken over in this way. The APA bid was to be 75 to 80 per cent funded by borrowed cash. Government MPs, including Nationals leader John Anderson, raised serious concerns about these astronomical debt levels, fearing any downturn in global aviation could lead Qantas to collapse, just as Ansett had done in 2001.
In order to pay off some of that debt, the consortium intended to strip $4.5 billion from the Qantas balance sheet in the first year of operation. That meant selling off key parts of the business, such as the Frequent Flyer Program, which had 4.6 million members. The real extent of the asset-stripping did not become clear until April, five months after the deal was first endorsed by the board and management of Qantas. Independent Senator Barnaby Joyce fumed: ‘This could be implied by some to be misleading. They are not playing with their money. They are playing with everybody else’s money and they are playing with our economy. This deal had hairs on it from the start. It’s getting hairier by the moment.’19 Federal Liberal MP Bruce Baird voiced his concern and said: ‘Perhaps in the light of these new aspects of the bid further review should be carried out on it.’20 In an eerie