Mergers, Acquisitions and Takeovers Case Study

The Takeover of Qantas: A Survival strategy?

OR

Abstract:
Qantas Airways was the national icon of Australia. It was a legend in the aviation industry and exhibited good performance in spite of the volatility of the aviation industry. In 2006, it earned US$13646.7 million. It was able to obtain considerable cost savings of $501 million in 2006 by its Sustainable Futures Program.

The company had adopted a policy of maximizing share holder value and kept an optimal capital structure which supported an investment grade credit rating. At Qantas, it was a custom to analyse the prize, availability, constraints, debt flexibility and credit rating before taking any capital management decision.

Qantas had ambitious plans of acquiring 115 B-787s airplanes. It accepted a takeover by a consortium involving Allco group, Macquarie bank, Texas pacific group and Onex. The Texas Pacific group was well known for acquiring unprofitable companies and turning them around. It had long been scouting the Asia Pacific market for a long term investment and the takeover of Qantas would provide it an exciting opportunity. The consortium promised Qantas to provide the capital needed for the fleet expansion program. But after this deal Qantas would be a heavily leveraged firm. Given the volatility of the airline industry and a heavily leveraged capital structure would Qantas be able to exhibit robust performance was a debatable question.

Pedagogical Objectives:

• To understand the dynamics of the global aviation industry
• To understand the optimal capital structure and the effect of leveraging
• Understanding the capital expenditure decisions of Qantas and the impact on the capital structure of the firm
• To discuss the future financing strategies of Qantas.

Keywords : Qantas Airways, Australian aviation industry, financial risk, performance of Qantas, Debt-equity, maximising share holder's value, capital structure, take over, Leveraged buyout, Private equity, Allco group, Texas Pacific group, Macquarie bank, Strategic Alliances, Sustainable Futures Program, fuel prices, Finance Case Study, airlines deregulation

Contents : 
Qantas: The Birth of a Legend
Qantas: In the Era of Privatization
Qantas: The Route Traveled
Qantas: On Taking-Over Task
Qantas: The Prospects and Challenges
Some Major Developments at Qantas
Sustainable Futures Program
Qantas Share Price Vs Offer Price