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Macquarie-Led Bid for Qantas Clears Another Hurdle

A consortium led by Macquarie Bank came closer to clinching an US$8.7 billion takeover of Australia's Qantas Airways Monday after the airline released an independent report saying the offer was fair.

The report said the offer price of A$5.60 a share was within its valuation range of A$5.18 to A$5.98.

Qantas said its board had unanimously recommended shareholders accept the bid. Its recommendation had been conditional on the independent report finding the bid price to be fair and reasonable.

"Qantas has delivered year-on-year profit, growth and diversification. But while the business has prospered, the Qantas share price has not," Chairman Margaret Jackson said in a letter to shareholders. "The offer is the best available option to enable Qantas shareholders to realize significant value for their investment."

The A$5.60 bid price values Qantas at more than 18 times forecast earnings, compared with P/E's of about 17.4 for Cathay Pacific Airlines and just over 13 for Singapore Airlines.

The report by Grant Samuel & Associates said any price above A$5.18 would be fair value. Analysts said the report was no surprise and the bid was expected to succeed, but it raised questions about the Qantas' management's past criticism of how the market valued the airline.

"Qantas management seem to be so vocal historically in being critical of the market I am surprise to see that the independent expert's report seems to be very close to what the market was valuing Qantas at pre-bid," said Fabian Babich, an analyst at brokerage BBY.

The bid consortium, Airline Partners Australia (APA), also includes private equity firm Texas Pacific Group, Allco Equity Partners, Allco Finance Group and Canadian investment firm Onex.

Last week Qantas raised its annual profit forecast for the third time in six months, helped by easing fuel prices and increased demand for travel. However, that news was tempered by an announcement that Singapore's Tiger Airways wants to launch a rival domestic airline in Australia.

Qantas shareholders have until March 9 to vote for the offer from Airline Partners. The consortium last week lodged an application with the Australian government's Foreign Investment Review Board for a review of the takeover.

The Foreign Investment Review Board (FIRB) has until March 7 to come up with a recommendation which will then go to Australian Treasurer Peter Costello, who has the power to block the deal if he rules it is not in the publc interest.