May 20, 2007

BA brings private equity rivals together to launch Iberia offer

British Airways has brought together a pair of rival private equity firms to form a bidding consortium that could launch an offer for Iberia, the Spanish airline, as soon as this week.

The carrier has been in talks for several weeks with Texas Pacific Group after the US buyout giant made a €3.4bn (£2.3bn) approach to the Spanish carrier in late March.

BA had also been in discussions with Apax Partners, which had been trying to form a rival bidding group. By bringing them together, BA reduces the possibility of a bidding war.

BA dare not overpay for Iberia after it reported its first quarterly loss in two years. The company blamed its poor performance on disruptions from a threatened cabin-crew strike and softening demand due to new air travel taxes and the weakened dollar.

Willie Walsh, the chief executive, also said that the group had set aside £350m to pay for possible fines stemming from an investigation into price fixing.

BA owns 10 per cent of Iberia and has first right of refusal to buy an additional 30 per cent stake, making its participation crucial to any suitor. The other members of the bidding group are the Spanish investment group Ibersuizas and Vista Capital.

The British airline had been expected to decide on a bidding partner up to two weeks ago, but put this off as the possibility of new bidding consortiums emerged. BA is keen to protect its privileged position in Iberia under its new owners and so wanted to make sure that it sided with the group most likely to prevail in the battle.

The formation of the consortium will be a disappointment for the board of Iberia, which is keen for a proper bidding war to increase the price.

A nucleus of investors who together control 25 per cent of Iberia - banks BBVA and Caja Madrid, department store El Corte Ingles, and tobacco distributor Logista - are understood to have invited alternative offers. As yet, none has surfaced.

By Danny Fortson


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