March 23 (Bloomberg) -- The Macquarie Bank Ltd.-led A$11.1 billion ($9 billion) buyout of Qantas Airways Ltd. was rejected by Balanced Equity Management, threatening the world's biggest airline takeover.

The Melbourne-based fund manager, which owns 4 percent of Qantas, said today the A$5.45 a share offer is too low. Qantas shares fell and the perceived risk of owning Qantas bonds declined on speculation the buyout will collapse.

UBS Global Asset Management, which owns more than 6 percent of the airline may also reject the bid, the Australian Financial Review reported earlier. This would stop Macquarie and its partners, including Texas Pacific Group, getting 90 percent of the stock, a condition of their offer.

``It's not dead yet but they are coming close to the deadline,'' said Sean Fenton, who helps manage the equivalent of $450 million at Jenkins Investment Management in Sydney.

Shares of Qantas closed 3.1 percent, or 16 cents, lower at A$5.06 in Sydney. Five-year credit-default swaps contracts based on $10 million of Qantas's debt fell to $191,000 from $222,000 yesterday, according to BNP Paribas prices. Investors are speculating Macquarie's group will be less likely to succeed with its bid, which involves loading the airline with debt.

Paul Fiani, UBS Global's head of Australian equities, wasn't immediately available to comment today. With takeovers in Australia running at near-record levels and the stock market close to a high, money managers have balked at bids from buyout firms because there are fewer alternatives in which to reinvest.

Final Bid

The bidders have said they will use A$3.5 billion of equity and A$7.6 billion of debt to fund the takeover. Buyout firms use a combination of their own funds and debt to pay for acquisitions. They seek to improve profitability before selling, usually within five years, to other funds or to investors through stock offerings.

About 50 percent of shareholders, accounting for 29 percent of Qantas stock, have accepted the bid from Macquarie, Texas Pacific and their partners Allco Finance Group Ltd., Allco Equity Partners, and Onex Corp. Under Australian takeover law, the buyout group can compulsorily acquire the stock of minority shareholders once it gets 90 percent of all securities.

Macquarie group has declared the offer final, prohibiting it from increasing the size of the bid. The group, which extended the bid until April 20, is ``considering a range of alternatives,'' it said in a statement.

Rising Markets

Balanced Equity Managing Director Andrew Sisson said he won't change his mind unless share markets fall or the outlook for Qantas deteriorates.

Australia's benchmark S&P/ASX 200 Index has risen 11 percent since Nov. 22, when Qantas accepted the bid. Shares of Virgin Blue Holdings Ltd., Australia's second-biggest airline, have climbed 33 percent.

Qantas Chairwoman Margaret Jackson has urged investors to accept the bid, saying the shares will slump if the buyout fails.

``If anyone thinks this will happen without affecting the share price then they have a mental problem with how the market works,'' Jackson told the Australian Financial Review on March 21.

Buyout firms are facing growing resistance in Australia.

Last month, shareholders of Flight Centre Ltd., the nation's biggest travel agent, rejected a A$1.6 billion management buyout, after Lazard Asset Management blocked the offer.

Buyouts at Risk

APN News & Media Ltd., a newspaper and radio company that's agreed to a buyout led by Irish billionaire Tony O'Reilly, needs to secure the support of Perpetual Investments and Maple-Brown Abbott, who own about 23 percent of the company. John Sevior, head of equities at Perpetual, has called the bid ``too low to be successful.''

Offers by buyout firms rose to a record $33.4 billion in Australia last year, from $1.9 billion during all of 2005, according to data compiled by Bloomberg.

UBS AG and Carnegie, Wylie & Co. are advising Qantas on the bid. The buyout group is being advised by Macquarie Bank.

Qantas said last week pretax profit may almost double to A$1.23 billion in fiscal 2008, from A$671 million in the 12 months ended June 30, 2006, as jet fuel prices fall and it carries more passengers.

The airline has reported 13 straight years of profit growth, withstanding an industry slump that triggered $40 billion of losses by global airlines since 2001.

Still, the airline is facing more competition. Virgin Blue this week ordered six wide-body Boeing Co. aircraft to start flying to the U.S., taking on Qantas on one of its most profitable routes.

Fabian Babich, a transport analyst at stockbroker BBY Ltd. in Sydney, said the bid may still be able to succeed.

``The bulk of the trading around Qantas is largely based on the arbitrage situation,'' he said.

Barclays Global Investors Australia Ltd. reduced its stake in Qantas, and now holds less than 5 percent, according to a regulatory filing today.

To contact the reporter on this story: Joyce Moullakis in Sydney at Jmoullakis2@bloomberg.net

Last Updated: March 23, 2007 03:52 EDT