09/09/10, 22:07:19 EDT

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British Airways Drops Plan to Bid for Spain's Iberia

bloomberg.com

British Airways Plc, Europe's third-largest airline, dropped plans to bid for Spanish carrier Iberia Lineas Aereas de Espana SA.

The London-based company, which owns 10 percent of Iberia, won't exercise preemption rights to acquire shares being sold by local investors to Caja Madrid, it said in a statement today. That will allow the Spanish bank to build a 24 percent stake.

British Airways said Nov. 2 that it and U.S. buyout firm TPG Inc. planned to bid for Madrid-based Iberia within weeks. Three days after those comments a Spanish group including Alicia Koplowitz made a 3.7 billion-euro approach ($5.5 billion), while Caja Madrid said last week it had agreed to buy holdings totaling 14 percent from Banco Bilbao Vizcaya Argentaria SA and Compania de Distribucion Integral Logista SA.

``The Spanish have circled the wagons around this national asset,'' said Douglas McNeill, an analyst at Blue Oar Securities in London with a ``buy'' rating on the stock. ``This is the end of the road for the TPG- and British Airways-led bid.''

Shares of Iberia, Spain's largest airline, fell 6 cents, or 1.9 percent, to 3.14 euros. The stock has advanced 14 percent this year, valuing the company a 2.99 billion euros.

British Airways fell 16 pence, or 4.6 percent, to 329.75, giving a market value of 3.8 billion pounds ($7.9 billion). The stock has declined 37 percent so far this year.

Still Important

``British Airways' position as Iberia's key industrial partner remains important and is not dependent on an increase in shareholding,'' Chief Financial Officer Keith Williams said in the statement. ``We will enter into discussions with Caja Madrid in order to maximize the value of our relationship with Iberia.''

Iberia, which has a fleet of 210 planes and almost 24,000 employees, is attractive to suitors because of a route network that includes the highest density of services between European and Latin American cities such as Buenos Aires and Rio de Janeiro.

The new deregulated ``open skies'' aviation agreement between Europe Union and the U.S., effective next March, has also triggered interest in consolidation as carriers maneuver to make the most of new opportunities for transatlantic flights.

Second Place

Buying Iberia would have added 5.2 billion euros in annual revenue, making British Airways Europe's second-biggest airline by sales after Air France-KLM Group, leapfrogging Deutsche Lufthansa AG of Germany.

Iberia reported net income of 57 million euros last year, with operating profit equal to 2.5 percent of sales. Margins have been below 5 percent since 2002. British Airways had net income of 290 million euros and a margin of 7.5 percent.

The Spanish carrier attracted 2.3 million passengers in October, down 3.9 percent from a year earlier, while British Airways carried 2.8 million, an increase of 0.6 percent.

TPG, formerly Texas Pacific Group, told Iberia in March it might make a cash offer of 3.60 euros a share. Vista Capital de Expansion SA, a Spanish venture-capital company, became a partner in April and British Airways joined the group in May, saying it would contribute its 10 percent stake.

TPG declined to comment today when contacted by Bloomberg.

Iberia spokeswoman Margarita Blanco said she didn't know if British Airways had made formal contact about its decision and that managers were meeting to discuss the situation.

``This is a matter to be sorted out between our shareholders,'' she said.

Iberia is a long-standing ally of British Airways and a partner with the larger carrier in the OneWorld alliance.

``British Airways have clearly realized Iberia has become too expensive and the airline is not going to bid at the price Caja are prepared to bid at,'' said Nick Van den Brul, an airline analyst at Exane BNP Paribas in London. ``Caja's bid forced BA to show its hand finally or walk away. They have walked away.''

 Printable Version  | published Nov 26, 2007