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WSJ: Virgin Blue Receives Takeover Offer

Sat Jan 29, 2005 1:37 am

Fair-use excerpt from The Wall Street Journal:

Australian transport company Patrick Corp. Friday launched a bid of two billion Australian dollars (US$1.55 billion) for the 54.6% of Virgin Blue Holdings Ltd. that it doesn't already own.

Patrick, which had been an apparently easy-going partner alongside Virgin Blue founder Richard Branson since the carrier's shares listed in December 2003, is offering A$1.90 a share for the rest of Virgin Blue.
When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' -Theodore Roosevelt
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RE: WSJ: Virgin Blue Receives Takeover Offer

Sat Jan 29, 2005 8:04 am

The reference to an easy going partnership between Patrick Corp and Branson destroys the credibility of the WSJ reporter for anyone in the aviation industry or paying even the slightest attention in Australia.

As I pointed out in a defunct early post yesterday, the real issue is whether or how quickly Patrick CEO Chris Corrigan will sell Virgin Blue and to whom.

Corrigan is pricing Virgin Blue well below the money at $1.90 according to every other financial analyst I've read today and yesterday. But it is reasonable to expect he will get enough acceptances to gain outright control of Virgin Blue as he only has to go from 46% equity to 50.01%.

This means that Branson will not prevail even if he opposes the initial bid, which is highly likely.

After that outright control is achieved Corrigan COULD be tempted to sell, if in fact he doesn't already have a buyer.

The short list starts with Emirates and ends with SQ or its major shareholder Temasek Holdings.

Several things to remember.

Corrigan is very familiar with Dubai, home port of EK. That's where he trained his strike breakers when he took on and crushed the water front unions.

EK is a conscientiously well managed airline with publicly stated ambitions to follow the SQ model both as a carrier and in relation to its hub.

It needs external investments to feed its growth. Qantas has already made a detailed submission to the ACCC (in relation to its failed bid to merge with Air NZ) concerning the alarm with which it would view an EK base in Auckland.

Put the reasonable prospect that EK will invest in NZ beside the prospect of its acquiring all of Virgin Blue (as permitted under Australian law for domestic operations) and as I predicted yesterday, truckloads of fresh under daks are being delivered to Qantas HQ.

For those of you who work in the Australian or NZ aviation sectors I'd look forward to such developments. EK is already a major employer of talented airline people from this part of the world.

I recommend or for those abroad who'd like to read more. The Australian Financial Review has the best coverage today but its web site has been deliberately allowed to grind to a shuddering halt, even for subscribers.

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RE: WSJ: Virgin Blue Receives Takeover Offer

Sat Jan 29, 2005 9:29 am

Corrigan has realised at last that he is in a very vulnerable position as is Qantas.
My guess would be SQ will race to buy in.
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RE: WSJ: Virgin Blue Receives Takeover Offer

Sat Jan 29, 2005 9:43 am

SQ have said they aren't interested in a DJ stake, but wholly owning DJ may be what they are after.

SQ have never hidden their desire to compete domestically in Australia and purchasing DJ at the moment seems like their only option to fullfill that desire.

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RE: WSJ: Virgin Blue Receives Takeover Offer

Sat Jan 29, 2005 9:49 am

The very latest I've heard is that SQ is categorically not interested in investing in Australia and New zealand and is still looking for the $800 million lost on the last fiasco.

But nothing has been heard (as usual) from Temasek Holdings, which is the majority owner of SQ and has investments in Jetstar Asia as well as SQ LCC Tiger.

Guess we all stay tuned.
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RE: WSJ: Virgin Blue Receives Takeover Offer

Mon Jan 31, 2005 9:47 am

Isn't it the case that Corrigan wants to take it private therefore Branson is in a good position?. Would EK or SQ want majority control of a listed DJ. Share value follows profit and won't stop a competitor coming in with a small spoiler strategy. In other words take the scenario of SQ buys 51% off Corrigan and somebody else like EK or NZ through Freedom starts flying or just talks about flying domestically out of BNE. Even the promise of more competition will probably tank DJ share price even more.
It would appear the listing is a nightmare.
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RE: WSJ: Virgin Blue Receives Takeover Offer

Mon Jan 31, 2005 4:13 pm

We need to note one thing about DJ that most of the Australian media chooses to ignore.

It is the only airline since WW11 in Australia (and possibly before) that has achieved investment grade profits in any year. In fact it has done so two full years running.

On my reading of its recent profit warning, it will also make investment grade profits for three years running, just less than it first thought.

Jetstar concedes that DJ has a 10-11% cost advantage over it, although for how much longer remains to be seen.

Since Jetstar began flights last May 25 Virgin Blue hasn't lost any market share to Qantas (up to the end of November) but it hasn't continued to expand either.

The market expects Qantas to produce a very good six monthly result on February 17 because it has said it would, and because it continues to sell to price insensitive customers in government departments and some (but not all) corporatations. We do not see any clear indication however that it has made the sort of money it needs to justify the cost of $A 18 billion of cap ex over the next 10 years. If Qantas cannot generate investment grade returns it needs to keep expanding gross revenue aggressively, and from my point of view, that means trying to kill Virgin Blue and then screwing the public really hard and turning air travel back into a luxury rather than a convenience.

It is also a worry for Qantas that some of these price insensitive business customers are being reeled in by cost conscious managements, but not overnight. Qantas has also done very well on key international markets in recent months, and hedged its fuel supremely well, while Virgin we understand didn't hedge at all. (No wonder Corrigan is furious with Godfrey.)

This makes the struggle for Virgin Blue very interesting. It might be a minority slice of the Aussie market, but it is domestically the one still earning the most cream per dollar of revenue.


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