The merger is expected to be complete by November this year and has received approval from local aviation authorities but awaits both European Commission and shareholder approval.
BA and Iberia will create a new holding company, International Airlines, which is expected to generate €400m (£350m) within the next five years and will fly 58m passengers in 408 aircraft a year.
Under the agreement, BA shareholders will receive one new share in the new company for every existing share they own, while Iberia shareholders will receive 1.0205 shares in International Airlines for every existing share they hold.
The holding company will be traded on the London Stock Exchange and the Spanish Stock Exchanges Interconnection System, BA and Iberia hoping that it will be included in the FTSE index.
“The merger will also have greater potential for further growth by optimising the dual hubs of London and Madrid and providing continued investment in new products and services,” said BA chief executive Willie Walsh.
Iberia chairman and chief executive Antonio Vazquez said the merger will better equip both airlines to compete with other airlines and participate in future industry consolidation.
The Spanish carrier has the power to back away from the merger should BA’s pension deficit remain unresolved and its recently agreed plan with its pension trustees not materialise.
“Moving closer to a merger with Iberia could not have come at a better time for British Airways, but still needs to be treated with caution,” said Manoj Ladwa at ETX Capital.
JOAQUIN ARENAS DE BEDMAR
Morgan Stanley has been appointed as lead financial adviser to Spanish carrier Iberia during its merger negotiations with British Airways (BA), with investment bank managing directors Randy Sesson, Joaquin Arenas De Bedmar and Enrique Lavina taking lead role.
Spanish law firm Garrigues fielded a team advising Iberia on local laws under the lead of co-managing partner Fernando Vives Ruiz, with Madrid corporate partner Alvaro Lopez-Jorrin assisting.
City firm Norton Rose advised on UK aspects to the deal, with corporate partner Nick Adams maintaining the relationship between Iberia and the firm.
Meanwhile, corporate powerhouse Slaughter and May has maintained a long standing relationship with BA and advised the airline on the UK aspects to the merger. Slaughter’s corporate partners Stephen Cooke and David Wittmann, and tax partner Tony Beare acted alongside Spanish firm Uria Menedez.
Madrid corporate partner Juan Francisco Falcon led for the firm.
BA turned to UBS for financial advice.