Qantas flight path questioned

Could a break up of Qantas be on the cards?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published November 19, 2012 1:58 pm AEDT

A partial takeover of Qantas Airways Limited (ASX: QAN) is rumoured to be in the wings, going by a report in today's Australian Financial Review (AFR).

According to the newspaper, Former Qantas finance chief Peter Gregg and venture capitalist, Mark Carnegie are considering taking a majority stake in the company, with a view to push for an alternative strategy. Both worked on the failed private equity bid for the airline in 2006, which at the time was offering $5.60 a share.

The new strategy could include a more aggressive push into Asia, a partial selloff of subsidiary Jetstar, and the sale of the frequent flyer business to return capital to shareholders. The AFR understands that Mr Gregg and Mr Carnegie recently held talks with union groups representing pilots, engineers and ground workers, in a bid to secure their support.

The newspaper believes the pair have been linked to other high profile business people, including ad-man John Singleton, trucking magnate, Lindsay Fox and former Qantas chief, Geoff Dixon; and have the support of about 20% of Qantas shareholders for their plan.

Both Mr Gregg and Mr Carnegie appear to be in favour of pushing for closer ties with an Asian airline, rather than with Emirates, but that could be a risky move. With the Qantas international division unprofitable, the deal with Emirates appeared to be the best way forward for the business, by cutting costs and freeing up capital and planes to expand into Asia.

At the same time, Qantas' domestic division is facing unprecedented competition from Virgin Australia Holdings (ASX: VAH). Virgin recently announced that it was taking a 60% stake in budget airline Tiger Airways Australia, and a full takeover of Skywest Airlines (ASX: SXR) as part of a three-pronged assault on Qantas. It seems Virgin is going to take on Qantas Domestic, while Tiger will compete against Jetstar and Skywest may be expanded to compete against Qantas Link. Additionally, Virgin is also going upmarket, offering business and premium class airfares, and competing for corporate travel accounts – previously the domain of Qantas.

Foolish takeaway

With Qantas' share price languishing around $1.27 and trading at less than its book value, the company is likely to be the target of a least a few investors who believe they can extract more value.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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