British Airways has disclosed that it was involved in negotiations with several private equity investors about launching a joint takeover bid for Spanish airline Iberia, inflating the chances of a bidding war for the Spanish flag carrier. However, BA has categorically clarified that it will not make an independent bid for the airline. BA in its official statement has said, ‘As well as a private equity partner, this consortium is likely to include one or more Spanish partners and any consortium bid would not involve further capital investment by British Airways.’
At present British Airways holds 10 percent stake in the Spanish airline and strategically BA holds a right of first refusal on an additional 30 percent of the Spanish flag carrier. Therefore, technically BA’s position stands for 40 percent of the Spanish airline in a bid situation. And this privileged position of BA empowers it to repel a hostile bid, or force a consensual bidder to pay a higher price.
Being in an almost commanding situation British Airways has said that it has not made a ‘final’ decision about the future of its shareholding in Iberia yet and continues to examine numerous options including full disposal. However, it has acknowledged that it has received an approach from a consortium led by Texas Pacific Group.
The US buyout firm Texas Pacific Group has already approached the Spanish airline with a $4.6 billion takeover offer last month. According to reports British Airways may consider either joining the bid by TPG or backing a competing bid from one of two other unidentified private equity firms.
Iberia, which at present enjoying a 20 percent share of the air travel market between Europe and Latin America, has made shown its interest in pairing with another European carrier to take advantage of the recently concluded so-called open-skies agreement reached between the European Union and the US, which abolished many protective restrictions on North Atlantic travel. Analysts have argued that TPG is aiming to acquire second-tier airlines by size and depot them until the airline bilateral regulation systems falls away, finally allowing cross-border airline mergers and the probable emergence of three global airline groups.
However, any consortium or group making an acquisition bid is liable to include one or more Spanish partners. Technically at least 51 percent stakes of Iberia is required to remain under Spanish control for the airline to keep traffic rights with other countries. Consequently any consortium bidding for Iberia would be required to be carefully constructed to make certain that Iberia remains majority owned by Spanish investors.
