BRITISH AIRWAYS AND IBERIA AGREE MOU FOR PROPOSED MERGER OF EQUALS
British Airways’ and Iberia’s boards have today agreed a binding
memorandum of understanding (MoU) setting out the basis for a proposed
merger of the two companies to create a new, leading European airline
group that recognises the principle of parity at board and management
level.
The new airline group would have 419 aircraft and fly to 205
destinations. In 2008, British Airways and Iberia carried 62 million
passengers and, in their last financial years, their joint revenues
are approximately € 15 billion.
The airlines believe there is a compelling strategic rationale for the
transaction, which is expected to generate annual synergies of
approximately €400 million, and benefit both companies’ shareholders,
customers and employees. The new group will combine the two companies’
leading positions in the UK and Spain and enhance their strong
presence in the international longhaul markets, while retaining the
individual brands and current operations of each airline.
The merger is expected to be completed in late 2010.
Principal terms of the proposed merger
The proposed merger will result in the creation of a new holding
company (TopCo) that will own both the existing airlines and whose
shareholders will be the current British Airways and Iberia
shareholders. Under the terms of the proposed merger, British Airways
shareholders will receive one new ordinary share in TopCo for every
existing British Airways ordinary share held by them and Iberia
shareholders will receive 1.0205 new ordinary shares for every
existing Iberia ordinary share held by them. On the basis of this
exchange ratio, and after cancellation of the treasury shares held by
Iberia and prior to the cancellation of the cross-shareholdings held
by British Airways and Iberia in each other, British Airways
shareholders will hold 55 per cent of TopCo and Iberia’s shareholders
will hold 45 per cent.
TopCo will be a Spanish incorporated company registered in Madrid,
Spain. The majority of board meeting and all shareholders meetings
will take place in Madrid. As at completion of the merger, TopCo will
be tax resident in Spain. The operating and financial headquarters of
the combined group will be located in London, which shall contain the
principal management functions of the combined group. A further
management office will be located in Madrid.
The TopCo board will comprise 14 directors with seven designated by
each airline.
Antonio Vázquez, Chairman and CEO of Iberia, said: “It has been a long
process where many people, both at British Airways and Iberia, have
worked very hard to reach this agreement. But in the end it was worth
it. This agreement is a giant step in the history of both Iberia and
British Airways. We are laying the foundations of what will be one of
the most important airlines in the world, a real global airline. I
believe that, thanks to this transaction, which is the most important
in the European airline industry in recent years, we are more prepared
than ever to face future challenges.”
Willie Walsh, British Airways chief executive, said: “The merger will
create a strong European airline well able to compete in the 21st
century. Both airlines will retain their brands and heritage while
achieving significant synergies as a combined force.”
Benefits of the proposed merger
The British Airways and Iberia boards believe that the principal
benefits of the merger include:
Significant customer benefits
Enhanced customer benefits with a larger combined network for
passengers and cargo and continued investment in new customer products
and services.
The combined group will offer its customers connections to 205
destinations and strengthen the oneworld alliance. British Airways’
customers will gain access to up to 59 new destinations, of which 13
will be in Latin America, while Iberia’s customers will gain up to 98
new destinations across the British Airways network. They will also be
offered better frequencies and connections, more competitive prices,
access to more VIP lounges and enhanced frequent flyer benefits.
Improved strategic position within the global aviation sector
Highly complementary network fit worldwide, in particular combining
British Airways’ strong presence in North America, Asia-Pacific and
Africa with Iberia’s strong Latin American presence.
Greater potential for future growth by optimising the dual hubs of
London and Madrid.
Enhanced scale and ability to compete with other major airlines and
participate in future industry consolidation.
Significant synergy potential
Annual synergies of approximately €400m at budgeted exchange rates are
expected by the end of the fifth year after the completion of the
merger at a cash cost of up to €350m. The synergies will be
incremental to the existing value from the airlines’ joint business
between the UK and Spain. Approximately one third of the synergies are
expected to be revenue related (joint selling, network and revenue
management benefits) with the balance coming from cost synergies in
areas such as IT, fleet, maintenance and back office functions.
Strong group management team to maximize the combined group’s earnings
potential and deliver synergy benefits while maintaining localised
operational focus and accountability.
Group structure and governance
TopCo
TopCo will have its primary listing on the Official List of the UK
Listing Authority and its ordinary shares will be traded on the main
market of the London Stock Exchange and included in FTSE’s UK Index
Series. It will comply with the Combined Code and the Pre-Emption
Guidelines of the Association of British Insurers and, to the extent
that it is legally able to do so, the UK City Code on Takeovers and
Mergers. If possible, TopCo will also have a secondary listing in the
Spanish Stock Exchanges (Mercado Continuo español). If there is no
such secondary listing, the regulation of takeovers in respect of
TopCo will be subject to split jurisdiction between the UK Takeover
Panel and Spanish Comisión Nacional del Mercado de Valores (“CNMV”)
otherwise, the CNMV will regulate takeover activity in respect of
TopCo.
The TopCo Board will comprise 14 directors, including the group CEO
and the CEOs of both OpCos and 11 non executive directors. Antonio
Vázquez will be group chairman and Martin Broughton will be deputy
group chairman. British Airways and Iberia will each designate three
non-executive directors to the TopCo Board (of which one will be
Martin Broughton) and four new independent directors will be
appointed.
Operating Companies (Iberia and British Airways)
An ownership and governance structure (“National Control Structure”)
has been developed to ensure that the existing route licences and
traffic rights of both British Airways and Iberia are retained. For
the first five years following completion of the transaction, the
majority of the voting shares in British Airways and Iberia will be
owned by special UK and Spanish bodies respectively (“National
Bodies”). These shares will have minimal economic rights.
The National Bodies will be represented on the respective OpCo boards
where their role will be to protect existing route licences and
traffic rights and to ensure compliance with the Assurances (as
defined below). The bodies will enter into shareholder agreements with
TopCo to ensure that TopCo can manage the combined group as a single
economic entity.
The British Airways and Iberia OpCos will retain profit and loss
accountability and will implement a joint business plan and synergy
plan to be developed by the group management team. Each operating
company will retain its respective Air Operators Certificate and
remain responsible for its own day to day commercial and operational
management.
Each OpCo will have a board comprising nine directors, of whom five
will be executives (including both OpCo CEOs and the group CFO).
Antonio Vázquez will remain chairman of the Iberia OpCo board and
Martin Broughton will also remain chairman of the British Airways OpCo
board. Three non-executive directors will be appointed by the
respective UK and Spanish National Bodies under the National Control
Structure. The decisions of the OpCo boards will be made by simple
majority, except for matters which, if effected, would be contrary to
the Assurances, which will require the approval of at least seven
directors.
Group management
The combined business will be led by the group CEO, Willie Walsh, and
a management team chosen equally from each airline. It will comprise
of the group chief executive officer and group chief financial
officer, the chief executives of the each airline (OpCo), a revenue
synergies officer and a cost synergies officer. The group management
team will be responsible for the overall direction and strategy of the
combined business, delivery of synergies and co-ordination of central
functions.
The group management team will initially comprise:
Willie Walsh, Group CEO
Rafael Sánchez-Lozano, CEO of Iberia OpCo
Keith Willliams, CEO of British Airways OpCo
Enrique Dupuy De Lôme, Group CFO
Robert Boyle, Revenue Synergies Officer
José Maria Fariza, Cost Synergies Officer
Assurances
To protect the specific interests of British Airways and Iberia and
their respective stakeholders both parties will agree to give certain
Assurances (“Assurances”) that will last for five years from
completion of the merger. The Assurances include:
Both airlines to keep their main base in their home country with their
own licenses, certificates, codes and brands.
Slot and destinations will be protected for the benefit of the combined group.
The group’s network strategy will be developed in a way that reflects
the importance of both London and Madrid hubs.
There will be a balanced long-term development of the networks served
from each of the Madrid and London hubs and there will be a reasonable
division of opportunities between the two networks.
Labour relations will be handled locally.
Iberia or TopCo will not provide any guarantee or use any cash or
credit facilities to fund the BA pension schemes.
Pre-conditions and conditions
The signing of a definitive merger agreement, which is expected to
occur in the first quarter of 2010, remains subject to a small number
of pre-conditions including:
Appropriate confirmations from the Spanish and UK Civil Aviation
Authorities as to the suitability of the UK and Spanish bodies and
from the CNMV as to the suitability and implementation of the
structure. In particular that it does not impose any conditions that
would prevent TopCo from having its primary listing in the UK and
being included in the FTSE UK Index series.
Limited confirmatory due diligence.
It has been agreed that the merger agreement will be subject to the
following conditions:
Appropriate antitrust and other regulatory clearances having been received.
Approval from British Airways’ and Iberia’s shareholders.
Admission of TopCo shares to a UK listing.
Iberia will be entitled to terminate the merger agreement if the
outcome of the discussions between British Airways and its pension
trustees is not, in Iberia’s reasonable opinion, satisfactory because
it is materially detrimental to the economic premises of the proposed
merger.
Under the terms of the MOU the parties have agreed that a break fee of
€20million will be paid in certain circumstances. The break fee
provisions will also be reflected in the merger agreement.
Shareholder approval process and timetable
British Airways and Iberia expect to present the transaction for
shareholder approval at the latest in early November 2010 with
completion expected to occur approximately one month following such
approval.
Further details of the transaction and the joint business plan to be
developed by the combined management team will be communicated
following execution of the merger agreement.
The proposed merger will not be subject to the UK Takeover Code.
Ends
November 12, 2009
This announcement is for information purposes only and does not
constitute, or form part of, any offer or invitation to purchase,
otherwise acquire, subscribe for, sell, otherwise dispose of or issue,
or any solicitation of any offer to sell, otherwise dispose of, issue,
purchase, otherwise acquire or subscribe for, any security in the
capital of British Airways, Iberia or TopCo in any jurisdiction.
Securities may not be offered or sold in the United States absent
registration or an exemption from registration and any public offering
of securities to be made in the United States will be made by means of
a prospectus that will contain detailed information, including
financial statements.
Neither this announcement nor any copy of it may be taken or
transmitted, directly or indirectly, into the Australia, Canada,
Japan, New Zealand or the Republic of South Africa or any other
jurisdiction where to do so would constitute a violation of the
relevant laws of such jurisdiction. Any failure to comply with this
restriction may constitute a violation of the securities laws of
Australia, Canada, Japan, New Zealand or the Republic of South Africa.
The distribution of this announcement in other jurisdictions may be
restricted by law and persons into who possession this announcement
comes should inform themselves about, and observe, any such
restrictions.
UBS is acting as financial adviser to British Airways and no one else
in connection with the proposed merger and will not be responsible to
anyone other than British Airways for providing the protections
afforded to the clients of UBS nor for providing advice in relation to
the proposed merger or any other matter referred to herein.
Morgan Stanley are acting as financial advisers to Iberia and no one
else in connection with the Proposed Merger and will not be
responsible to anyone other than Iberia for providing the protections
afforded to the clients of Morgan Stanley nor for providing advice in
relation to the Proposed Merger or any other matter referred to
herein.
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This press release includes forward-looking statements, such as
British Airways’ and Iberia’s beliefs and expectations regarding the
proposed combination of the two businesses. These statements are based
on certain assumptions and reflect British Airways’ and Iberia’s
current expectations. Forward-looking statements also include
statements about British Airways’ and Iberia’s beliefs and
expectations related to the Proposed Merger, benefits that would be
afforded to customers, benefits to the combined business that are
expected to be obtained as a result of the Proposed Merger, as well as
the parties’ ability to enhance shareholder value through, among other
things, the delivery of expected synergies. There can be no assurance
that the Proposed Merger will be consummated or that the anticipated
benefits will be realised. The Proposed Merger is subject to various
regulatory approvals and the fulfilment of certain conditions, and
there can be no assurance that any such approvals will be obtained
and/or such conditions will be met. All forward-looking statements in
this press release are subject to a number of risks and uncertainties
that could cause actual results or events to differ materially from
current expectations. These risks and uncertainties include: the
ability to achieve the cost savings and synergies contemplated through
the Proposed Merger; the failure of British Airways and Iberia
shareholders to approve the Proposed Merger; the effect of regulatory
conditions, if any, imposed by regulatory authorities; the reaction of
British Airways’ and Iberia’s customers, employees and suppliers to
the Proposed Merger; the ability to promptly and effectively integrate
the businesses of British Airways and Iberia; and the diversion of
management time on merger-related issues. Additional factors that
could cause actual results or events to differ materially from current
expectations are discussed in British Airways’ and Iberia’s respective
materials filed with the securities regulatory authorities in the
United Kingdom and the Spain (as the case may be) from time to time
including Iberia’s 2007-2008 Annual Report and British Airways
2008-2009 Annual Report. Any forward-looking statements made by or on
behalf of British Airways or Iberia speak only as of the date they are
made. British Airways and Iberia each disclaim any intention or
obligation to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.