Interview: Patrick Corp.
>> down to the wire in australia. 7:00 p.m. tonight is the deadline, patrick corges’s takeover offer for low-cost carrier virgin blue. at last tally, patrick is 3% from taking majority control. what are people banging on -- banking on for an outcome?
>> patrick corp. has bid $1.90 a share for virgin corporation. virgin blue, i should say. virgin blue shares rose to as high as $2.20 but -- $2.10 but yesterday closed at $1.93, indicating that no one thinks there will be another bid or that patrick corporation will increase its bid for virgin blue. patrick corporation, the c.e.o. there, has indicated that what he’s interested in doing is taking control of virgin blue. he doesn’t need 100% of it to control virgin blue. so they have increased their stake by 1.7%, just less than 3% from taking control. and even if the offer does lapse today, they will still be able to, under the provisions of australian takeoverrules, be able to increase their share by 3% by the end of the year so they could end up with the control of virgin blue by the end of the year anyway. so it’s anyone’s guess as who what will happen today and we’ll have to wait and see.
>> in the brawrt market -- broader market , futures traders are banking on a higher opening after breaking three days of losses. we might be on the upside today. in terms of the industry and individual stories, what. will occupy attention?
>> with the oil price at 22 cents off a record, watch out for b.h.p. billiton, biggest oil producer in australia. watch out for woodside petroleum. yesterday, csfb increased its forecast for crude oil and said that could lead to a 20% increase in earnings per share for 2006 for woodside petroleum. watch out for bluescope steel. there was good news in the u.s. on friday when nucor increased its profit forecast. we also see the chinese steelmaker increasing its fourth-quarter profit by 36%. remember, bluescope steel is australia’s biggest investor in china with 28% of its sales from asia. there is another industry worth watching out for, that’s the banks. we’ve seen the australian 10-year bond yield dropping in the last―in early trading today and that seems to have followed a decline in bond yields in the u.s. which drove some of the big banking stocks higher and pulled the dow jones and s&p 500 higher in the last hour of trading there. back to you, bernie.
>> we’ll check with you later, david. the marlboro man is galloping into indonesia. $5.1 billion offer by altria, the owner of philip morris, to buy p.t. samp sampoerna. haslinda amin has more on the story. good morning. how big of a deal is this for samporna?
>> it’s not just the amount. investors say it’s significant for sampoerna and indonesia, as well, the purchase being the biggest in the country by an overseas investor. philip morris is offering to buy the remaining shares at the same price of $1.13 a share after -- 40%. michael kurtz says there’s possibleity of an upleg in the business and employment cycle. some investors say the potential for the indonesian market is huge. sampoerna controls 19% of the local cigarette market . philip morris’ marlboro brand accounts for 50% of indonesia’s conventional cigarette market .
>> what are the particulars on when the deal may close?
>> it’s expected the purchase will be done within 90 days, an all-cash transaction financed by a bank credit facility. investors say philip morris paid a premium for sampoerna. the valuation is not cheap, still, timothy ghriskey of solars asset management is optimistic, saying that a 20% premium is not excessive. indonesia is a high-growth region in the world, an area where an acquisition will increase philip morris’ growth rate. philip morris itself says it plans to take advantage of sampoerna’s strong branding and build on it. that’s the news for the moment, bernie.
>> thank you, haslinda. the world health organization says indonesia has no age restrictions on the sales of cigarettes and estimates 70% of indonesian men older than 20 smoke regularly. south koreay picked the top trade minister to take the top job at the finance ministry.
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Listen Interview: The shake-out in the airlines
thank you for tuning in for breakfast. obviously, there are more and more discount carriers snowballing in asia and can the region handle them all? how are the incumbents dealing with it? if you go back to row 66-c, sometimes they can’t compete with budget airlines. we’ll speak about the notion of too many airlines with the head of the center of asia-pac avenueiation. aviation. the headlines―oil hits $55 a barrel and falls back. a.i.g. down on reports its chairman, hank greenberg plans to step down. the stock down ..33%. u.s. stocks rise as oil falls back below $55 a barrel. and genentech rises after positive reports on its lung cancer drug. asian-pacific airlines may go bankrupt or come under government control because of international controls on airline ownership. the center for asia-pac aviation joins us. i thought that the shake-out in the airlines happened already. yet warning bell right now?
>> it’s happening in the united states, big-time. but it seems paradoxical, too, when we’re making such large profits in this region at the moment but the issue is we’re liberalizing quickly. there are two aspects to to deregulation, one is national ownership of airlines and the other is giving new access to routes and new entry. we’re giving new access to new carriers but not granting changing to the ownership rules in the airlines so they can’t merge, leaving them between a rock and hard place. they can’t get bigger or reduce competition by merging and they end up in a difficult situation, going downhill after.
>> that realistically, we’ve seen the the saga play out and we need look no further than where you are, australia and new zealand. new zealand is not going to let australia take majority control of its flag carrier just as singapore airlines won’t let the british take control of 66% of s.q.
>> there are two issues, one is the idea of nationalism and cross-border ownership which the governments don’t like. the other is it’s extremely hard with competition laws to permit mergers because we’re effectively reducing competition and to get over that hurdle is a very large issue. we’re watching carriers in the united states dying of strangulation because they can’t combine, even in a domestic environment.%
>> many of the l.c.c.’s proliferating around asia today were the brainchild of the one-time incumbent monopoly flag carriers so the fact that they’ve introduced the low-cost model while not cannibalizing their own main carriers, but they have introduced the budget airlines, so in a sense, even though there’s a nationalistic sense of ownership, they are introducing competition and making it a more playing field, are they not?
>> one of the interesting things with that, and particularly in singapore, is singapore’s subsidiary, tiger, low-cost airline subsidiary, is not owned entirely by singapore airlines. it’s only got a 49% share in that carrier so it becomes almost a different entity. the reason they are doing it is because they have to be in the low-cost end of the market to compete with the mushrooms sprouting up independently.
>> what is the future going to look like? you take china and the u.s., and several month ago they struck a renewed services pact and we have major airlines flying to china, achieving more landing rights in the future, probably leading to more freedom rights. are we leading to the market leading governments, forcing them to open up? will we see doltion? consolidation, will we see 2/3 of the airlines in existence in this port of the world today?
>> it is the market that has to lead governments at this stage. the governments are largely removing controls on entry and the market is responding to it, growing rapidly with strong economies. but in terms of changing some of these fundamental national ownership issues, it’s only going to be when carriers get to the brink and pushed over, like new zealand did a few years back, essentially going bankrupt because of the unwillingness to combine with singapore airlines, the government renationalized them. we’re saying you have the option of going bankrupt or being nationalized―government ownership.
>> what’s the state of route openings right now? s.q. has been pushing australia to open up the skies. dixon at qantas, chief executive, says it will cost him $40 million a year by liberalizing so you have a c.e.o. saying we can’t be more competitive because it will cost money so don’t open up routes. it sounds like no-go zone for a c.e.o. to speak like that.
>> it is. this is one of the pervasive things about the aviation business is that governments are involved in everything and when an airline wants to protect itself, it runs to the government to use nationalistic issues but singapore is in a battle with the indonesian government to get the indonesian government to open up more routes to allow low-cost carriers to operate there so we’re seeing the machinations escalate.
>> the last time i checked, i could fly to singapore for $50 u.s. on value air. i may do it, i have to go there this week to interview the prime minister. if what you say is true, if we go back to your original prognostication, if we see airlines go bankrupt because of structural problems, will the consumer suffer in years to come, peter?
>> i don’t think so, necessarily, especially not on the short-haul intra-anroutes because this is -- intra-asian routes. the result of the liberalization is we’re getting the carriers coming in. it’s the longer-haul network carriers as in the united states that are threatened. in the states, southwest is going to strength-strength as a point-to-point carrier.
>> peter harbison, head of the center for asia-pac aviation.
