KEY QUESTIONS AND ANSWER RE THE PROPOSED QANTAS ACQUISITION
What is the offer?
• Airline Partners Australia Limited has announced an off market takeover bid of $5.60 cash per share for 100% of Qantas Airways Limited (Qantas) subject to a number of conditions.
• Further information is contained in the Bidder Statement which can be downloaded from www.airlinepartnersaustralia.com.au.
• Further information is contained in the Target Statement which can be downloaded from www.qantas.com.au/infodetail/about/investors/targetsStatement.pdf.
Are there special laws and regulations that apply to Qantas?
• Qantas is currently subject to a number of company specific statutory requirements under the Qantas Sale Act 1992. It is also subject to restrictions under the Airports Act 1996. Such requirements will continue to apply to the airline regardless of its ownership.
What are the requirements under the Qantas Sale Act 1992?
• The Qantas Sales Act 1992 requires Qantas’ articles of association to include certain provisions, and for Qantas to maintain a register of shares in which foreign persons have a relevant interest. These will continue to apply to the airline regardless of its ownership. In particular, it:
– restricts foreign persons’ ownership of Qantas to 49 per cent;
– restricts foreign airlines’ ownership of Qantas to 35 per cent;
– restricts any one foreign person’s ownership of Qantas to 25 per cent;
– restricts foreign voting rights at Qantas;
– prohibits Qantas using another name;
– requires Qantas’ head office to be in Australia;
– requires Qantas’ principal operational centre to be in Australia;
– restricts Qantas’ foreign directors to one-third;
– requires the presiding director at Qantas’ board meetings to be Australian; and
– prohibits incorporation of Qantas outside of Australia.
What are the requirements under the Airports Act 1996?
• The Airports Act 1996 has requirements that ensure majority Australian ownership of airports, limit the ownership of airports by airlines, and ensure diversity of ownership and control of certain major airports. In particular, it:
– restricts foreign ownership of an airport to 49 per cent;
– restricts airline ownership of an airport to 5 per cent;
– restricts cross-ownership for Sydney/Melbourne, Sydney/Brisbane and Sydney/Perth airports to 15 per cent;
– requires the central management and control of an airport be exercised in Australia;
– requires the majority of the directors of an airport to be Australian citizens and/or residents; and
– requires records to be kept, and information to be given, regarding airport ownership.
What are the requirements under the Foreign Acquisitions and Takeovers Act 1975?
• The Foreign Acquisition and Takeovers Act 1975 (FATA) requires a foreign corporation to notify the Treasurer of any proposal to acquire 15 per cent or more of the shares of an Australian corporation valued at more than $100 million.
• If the FATA is applicable, the FATA confers on the Treasurer the power to decide whether a particular proposal would be contrary to the national interest.
• It is important to note that a particular proposal does not have to satisfy the threshold that it is in the national interest – simply that it is not contrary to the national interest.
• The concept of national interest is broad and includes elements such as national security, community interests, economic development, environmental issues and international obligations.
• Proposals that are deemed to be contrary to the national interest may be rejected, or approved subject to conditions which would ameliorate any national interest concerns.
• When considering significant proposals, the Treasurer is advised by an independent body, the Foreign Investment Review Board (FIRB), which consults widely with government agencies and, where relevant, community interests. All information regarding a particular proposal which may bear upon the national interest is taken into account by the FIRB in providing its advice to the Treasurer.
• Decisions made under the FATA are legally enforceable.
• When a statutory notice has been lodged the statutory period on proposals is 30 days from the date of receipt.
Has the consortium notified under FATA?
• Yes.
• The scrutiny of the proposal under FATA will be careful and rigorous and the matters fully tested.
What about competition issues? What is the ACCC doing?
• The Australian Competition and Consumer Commission (ACCC) administers the Trade Practices Act 1974 (TPA). Section 50 of the TPA prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in a market.
• On 14 December 2006 the ACCC commenced a market inquiry into the proposed acquisition of Qantas. It is examining whether the proposed acquisition would be likely to raise competition concerns.
• The closing date for submissions to the ACCC is 29 January 2006.
• The indicative date for ACCC’s announcement of the findings of its review is 1 March 2007.
• Further information can be found at www.accc.gov.au/content/index.phtml/itemId/771956.
What is the current foreign ownership level in Qantas?
• Foreign ownership of Qantas is currently approximately 46 per cent.
What is the Government going to do about private equity investment?
• The Council of Financial Regulators, consisting of the Reserve Bank of Australia (RBA), the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and Treasury, have established a working group to look at private equity investment and any attendant risks.
• This is an issue that is being monitored closely and their advice will be carefully considered once the Government receives it.
• The Council of Financial Regulators is the co-ordinating body for Australia’s main financial regulatory agencies.
Are there loopholes that allow Qantas subsidiaries to avoid foreign ownership limitations, Australian headquarters requirements and other government rules?
• Jetstar is a wholly owned subsidiary of Qantas with its own board and management and independence in its day-to-day operations.
• As outlined above, the Qantas Sale Act 1992 establishes a number of conditions on Qantas, including foreign ownership. While these requirements do not apply to Qantas subsidiaries like Jetstar, other legislation limits foreign ownership in Jetstar to 49%.
• The Air Navigation Act 1920 requires Australian international airlines be no more than 49 per cent foreign owned.
• Airlines must also obtain an international airline licence and be designated under relevant bilateral air services agreements, both of which are at the discretion of the Australian Government.
• In granting a licence to Australian airlines, the Government requires proof of Australian ownership control and corporate existence.
– In order to be obtain an international airline licence, Australian international airlines need to demonstrate that:
: At least two-thirds of Board members are Australian citizens;
: The Chairperson of the Board is an Australian citizen;
: The airline’s head office is in Australia; and
: The airline’s operational base is in Australia.<