BA May Join Private Equity Bid for Iberia

April 24, 2007
BA, which has a 10% stake in Iberia, said it had "approached a number of private equity companies about making a consortium offer for Iberia.''

BRITISH Airways is in talks with the private equity houses Texas Pacific Group and Apax Partners about joining their proposed bids for the Spanish carrier Iberia.

BA, which has a 10pc stake in Iberia, said it had "approached a number of private equity companies about making a consortium offer for Iberia''. The Spanish airline has already received a euro3.4bn ( pounds 2.3bn) indicative offer from Texas Pacific, pitched at euro3.60 per share, though Iberia shares are trading above this price. They closed at euro3.97 last night, down 1 cent.

BA stressed it had "ruled out an independent bid for the airline'' and that "any consortium bid would not involve further capital investment by British Airways''. It said any consortium would be "likely to include one or more Spanish partners''. BA shares fell 1 to 513p.

BA, which acquired its stake in Iberia seven years ago for euro109m, has been evaluating what to do with it since Texas Pacific made its move on Iberia last month. BA responded by appointing UBS to advise on its strategic options.

Apax, which recently floated the Spanish low-cost carrier Vueling, in which it retains a 20.9pc stake, is also working on a potential bid and has held talks about joining forces with Gestair, which leases planes and crew to Iberia.

BA is separately examining with the two private equity houses a deal that would see them refinance Iberia with more debt and possibly sell off the Spanish airline's minority stake in the Amadeus reservation system, its maintenance operations and its holding in the low-cost carrier Clickair.

BA would then roll over some or all of its current holding in Iberia, currently valued at about euro370m, for a larger minority stake in the new business.

BA currently operates a codeshare with Iberia on the Heathrow to Madrid and Barcelona routes and would be expected to take defensive action to prevent a competitor, such as Lufthansa or Air France, taking a major stake in Iberia.

The British flag-carrier is in a strong position because it has pre-emption rights over a further 27pc of Iberia, though one attraction of a consortium bid is that BA could raise its stake without injecting extra capital.

Any bid would need to preserve Iberia's Spanish identity to maintain flying rights from, say, Madrid to Latin America. BA stressed that it had "not made a final decision about the future of its share holding in Iberia and continues to examine numerous options including full disposal''.

The airline is also thought to have held early talks with the private equity houses Cinven and BC Partners, the majority owners of the Amadeus system, though the two are thought to be mainly interested in the reservation system.

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