updated 3/23/2007 8:54:16 AM ET 2007-03-23T12:54:16

A key stakeholder in Qantas Airways said Friday it would not accept a 11.1 billion Australian dollar ($8.9 billion) bid for the airline, throwing into doubt one of Australia's biggest proposed takeovers. Qantas stock sank 3.1 percent on the news.

Airline Partners Australia, the investment group making the bid, immediately announced it was extending the deadline for shareholders to accept their A$5.45-a-share offer by more than two weeks to April 20 and was considering its options.

Balanced Equity Management, an institutional fund which owns about 4 percent of Qantas, said Friday would not accept the bid led by Australia's Macquarie Bank and the Texas Pacific Group at the current price.

The investment group needs to secure 90 percent of shares for the deal to move ahead, but market sentiment has been moving against the bid in recent weeks on speculation that it undervalues the company.

"Since the announcement of the bid in December 2006, equity markets have appreciated significantly," Balanced Equity managing director Andrew Sisson said in a statement.

"Given the current level of the share market, in the absence of an adverse development in relation to Qantas, or a fall in equity markets, we do not intend to accept the bid of $5.45 per share in respect of the shares we manage on behalf of others," he said in the statement.

Qantas shares plummeted around 4 percent to A$4.89 immediately after the announcement, before recovering to close 3.1 percent lower at A$5.06.

Another large stakeholder, UBS Global Asset Management, which holds about 7.1 percent of Qantas, has reportedly also refused to back the bid at the current price. To date, UBS has refused to comment publicly on the bid.

Bob Mansfield, director of Airlines Partners Australia, or APA, said the bid had passed all regulatory hurdles and that attaining the 90 percent target was the only thing preventing the takeover going ahead.

Mansfield said the group already gained around 29 percent of Qantas shares, representing more than 50 percent of total shareholders. He said the offer was being extended from the original deadline of April 3 "to ensure that remaining shareholders throughout Australia and around the world have an opportunity to respond."

"Airline Partners Australia is considering a range of alternatives in light of the announcement" by Balanced Equity, the group said in a statement.

Because APA declared its bid final, Australia laws do not allow APA to increase it unless a rival offer emerges until after the deadline for its bid expires.

Analysts on Friday said options for APA include waiting until the deadline expires then raising offer price, dropping the 90 percent acceptance requirement or abandoning the deal for a few months to see if the share price falls. The current bid's financing is predicated on greater-than 90 percent acceptances.

The A$5.45 per share offered by APA on Dec. 14 was 33 percent more than Qantas' closing price on Nov. 6, the day before takeover speculation emerged.

Other members of the bidding group are Australia's Allco Finance Group and Canada's ONEX Corp.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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