British Airways’ (BA) owner IAG has announced today it will pay €75m (£63.7m) to Air Europa following yesterday’s decision to pull out from a £420m takeover deal, leaving shares up 0.70 per cent at closing time.
IAG said it would it would pay the rival carrier’s owner Globalia €35m, on top a €40m break-up fee, Reuters reported. The group said that, while a takeover was off the table, the two companies were still examining ways to work together.
“IAG has also reached an understanding with Globalia to evaluate, before the end of January 2022, alternative structures that may be of interest to both companies and offer significant benefits for their shareholders, customers and employees,” Reuters reported IAG as saying.
Initially announced in 2019, the takeover deal was cancelled yesterday as a result of the ailing state of aviation.
Buckinghamshire New University’s professor of aviation management David Warnock-Smith yesterday told City A.M. that while atypical, current circumstances forced IAG to pull out.
“With the more recent onset of the Omicron variant of Coronavirus, the chances of a quick rebound on international markets has suffered a further set back and as such the takeover’s business case has weakened further, prompting IAG to pull out of its bid and focus resources that would have been dedicated to dealing with regulatory requirements, on dealing with the pandemic response instead in addition to focussing on an alternative way for the two organisations to co-operate in the future, which may fall short of a full takeover scenario.”
Competition concerns, including an investigation launched in June by the European Commission that was followed by an inquiry by the UK’s Competition and Markets Authority (CMA), plagued the deal.
“The bad news just keeps coming for British Airways’ parent IAG,” said yesterday Laura Hoy, Hagreaves Lansdown’s equity analyst.
“The deal was under scrutiny from EU regulators who said the combination of IAG Spanish subsidiary Iberia and Air Europa created anti-competition concerns.”
For the CMA, concerns especially applied to the London-Madrid market, as Ryanair, Air Europa and Easyjet only take up a fraction compared with IAG’s market share.
“An expanded IAG group to include Air Europa, could see IAG’s market share increase further to 76 per cent, though it is possible that other carriers in the market would try and alter capacity offered in response to such a takeover, assuming there are slots available allowing them to expand, which at Heathrow and Madrid particularly might pose a problem for non-IAG carriers,” Warnock-Smith told City A.M. at the time.