Friday 23 March 2007

Qantas Takeover - Yes, No or Maybe

As a shareholder in Qantas, I've yet to decide whether or not to accept the $5.45 takeover offer by APA (Airline Partners Australia). When the stock was up near the offer price I was thinking of selling the stock on the market to lock in a tidy profit (my average cost is around $4.00) - I was leery of accepting the offer, mainly because it is conditional of receiving 90% acceptance and thus becoming compulsory. Unfortunately the stock drifted down below the offer price, and then dropped due the general market correction. Since then it has failed to get back up near the offer price as there was speculation that APA wouldn't reach the 90% acceptance level.

Today a major stockholder (with around 4% stake) announced that they defintely wouldn't be accepting the offer, so it looks likely that the APA offer will lapse, even though they've extended the offer until late in April.

I'm now toying with the idea of buying some MORE Qantas shares at their current price of around $5.06. This is 7.3% below the offer price, and, presumably the Qantas shares are thought to be worth at least this amount, otherwise the takeover would be accepted by shareholders. I'm thinking that if I buy at $5.06 there's three chances out of four of getting a good outcome. Either
1. the takeover succeeds, in which case I'd make a quick 5%+ return
2. the offer fails and a new, higher offer emerges - say $5.70
3. the offer fails and Qantas shares go higher than $5.45 in the medium term - say $5.80
4. the offer fails and Qantas shares drop back to their pre-offer level of around $4.20 - say $4.40

As the outlook for Qantas has improved since the takeover offer was announced, I doubt that the share price will drop back to $4.20 even if the takeover fails and no new offers emerge. I'd thus make a very rough estimate of my risk analysis as:

cost price = $5.09 (with brokerage costs)

expected outcome = [25% x $5.45] + [25% x $5.70] + [25% x $5.80] + [25% x $4.20]
= $5.34

ie. Expected outcome is 5.1% return in a couple of months.

Hmmmm, decisions, decisions

Enough Wealth

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