British Airways and its private equity partner, Texas Pacific Group (TPG), are preparing to cut their offer for Iberia airways from the indicative price of €3.60 - €3.4bn in aggregate - reports indicated yesterday.
Sources at the airline were said to believe that the eventual offer price could be"significantly below" the original figure because of the consortium's concerns about the cost of debt, amid the current credit market turmoil, the prospect of falling air fares and the general mood swing away from large private equity groups such as Texas Pacific.
"The real test will come in mid-September when banks have to firm up on their financing," said a source. A spokesperson for BA said: "The consortium is considering its position based on the amount of information Iberia makes available to it, before deciding the most appropriate way to proceed with its possible bid offer."
The consortium is carrying out due diligence on the Spanish airline, in which British Airways already holds a 10 per cent stake. The British Airways/ TPG consortium was expected to announce a binding offer by 27 September, the date of the next meeting to be held by the Iberia board. The consortium expects the in-depth analysis of the airline's books to be completed by mid-September.
At the board meeting, British Airways and its partners will attempt to gain the full support of Iberia for the bid. They will also then want to gain access to the financial and legal information which Iberia has said would be subject to receiving a binding offer.
Sources close to the consortium have described the due diligence process and the co-operation offered by Iberia directors as "very satisfactory". However, they evidently believe, informally, that an offer of perhaps closer to €3.2 per share would be more realistic.
Investors have been reassured by the announcement that TPG plans to go ahead with the offer, despite the American sub-prime mortgage crisis and the likely negative impact on the operation's financial costs. Iberia shares closed at €3.3 on Friday.
In separate developments, British Airways is said to be facing intensified legal action from cargo customers unhappy at alleged price-fixing. The airline recently had to pay £270m in fines in America and Britain after being found guilty of anti-competitive behaviour by running a fuel surcharge cartel. It now faces class action lawsuits on both sides of the Atlantic.
British Airways has set aside £350m for fines but it could have to pay hundreds of millions more as blue-chip companies including Ikea, Volvo and TNT signed up to a suit relating to cargo fuel surcharges.
Lufthansa is considering raising its stake in the British carrier bmi, of which it already owns 30 per cent minus one share, the German airline's chief executive Wolfgang Mayrhuber said yesterday.Reuse content