Originally Posted by Financial Times

The private equity consortium that on Thursday secured Qantas’ acceptance of an A$11.1bn (US$8.7bn) buy-out offer, is considering installing Geoff Dixon, the carrier’s chief executive, as chairman as well if the airline is privatised early next year, according to people familiar with the matter.

Combining the roles is considered contrary to governance best practice at listed companies, and awarding the pugnacious Mr Dixon stronger executive powers would underscore the vastly different management approach favoured by buy-out groups.

Qantas shareholders will within weeks vote on whether to follow Thursday’s board recommendation to accept the takeover bid from a consortium including Australia’s Macquarie Bank and Texas Pacific Group of the US.

Capital Group of the US, which owns a 12.8 per cent stake, is believed to back the offer of A$5.60 per share. Qantas stock ended Thursday 4 per cent higher at A$5.28.

In a widely hailed move, Mr Dixon promised to hand over any proceeds from a long-term incentive plan, potentially worth A$60m, to Aboriginal charities.

If the consortium decides against making Mr Dixon chairman, it is understood that Bob Mansfield, the former chairman of Telstra, would be a leading candidate to assume the post.

Mr Mansfield, who is a non-executive director at Australia’s Allco Finance, one of the main consortium members, is a confidant of John Howard, prime minister, and would be expected to help smooth relations with lawmakers in Canberra.

Airline Partners Australia, the consortium vehicle, will have an 11-member board, including two non-executives unconnected to the buyers. Sir Rod Eddington, the former British Airways chief executive who is also on the Allco Finance board, is not expected to join the APA board.

Allco Finance and Allco Equity Partners, its listed affiliate, will together own about 35 per cent of Qantas’ equity. Mr Dixon, who will remain at Qantas for at least three years, declined to comment about the chairman’s role. He also hit out on Thursday at a warning by the Moody’s rating agency that it might downgrade the airline’s debt to junk status in the wake of the buy-out. “I believe the statement was right out of line. The capital structure is more than adequate.”

The buy-out will be 80 per cent debt-financed, to be arranged by Morgan Stanley. Qantas was advised by UBS and Carnegie Wylie.

Originally Posted by FT Lex

What a difference a day makes. Barely 24 hours after rebuffing its private equity suitors, Australia’s Qantas Airways has agreed to a slightly sweeter bid: the buyers have upped their equity offer by less than 2 per cent and dropped a few conditions. Is Australia’s biggest private equity acquisition ready to fly?

The 6 per cent discount to the offer price at which Qantas’s shares closed yesterday suggests a certain scepticism over whether the deal will go through. Investors certainly believe the revised A$5.60-a-share offer is as good as it gets. This seems fair. Aviation ownership rules mean the pool of potential buyers is shallow. The buyers, a consortium including Macquarie Bank of Australia and Texas Pacific Group, are offering a 50 per cent premium to the three-month average. On adjusted enterprise value to forecast 2008 earnings before interest, depreciation, amortisation and aircraft leases, the price tag values Qantas below Cathay Pacific, Hong Kong’s de facto flag carrier, but at a slight premium to the more comparable Singapore Airlines.

The concerns of feisty labour union members and die-hard nationalists have also been taken on board. The new owners insist it will be business as usual and that they will not wield the axe over assets, routes or even the red kangaroo logo.

The big difference, of course, is the capital structure. The buy-out implies an enterprise value of about A$24bn, of which 80 per cent will be funded by debt. The financing package being put in place is understood to imply net debt to the tune of about six times ebitda. That is lower than recent leveraged buy-outs in Australia, but a big bite for a company in a notoriously cyclical industry that also has large capital spending plans. This looks like one of private equity’s boldest bids – and one it will need to exit well before the credit cycle turns.