Caja Madrid sees way clear for Iberia

TPG, the US private equity group, and British Airways were expected on Monday to abandon their plan to mount a takeover bid for Spain’s Iberia, the fourth-largest European airline.

The five-member consortium led by TPG and BA was expected to withdraw from the chase for Iberia in the face of the hostile response to its proposed bid from Caja Madrid, the Spanish savings bank.

BA and Caja Madrid each hold a stake of just under 10 per cent in Iberia as part of a group of core shareholders, which together control 36.6 per cent of the Spanish flag carrier and have rights of first refusal on each other’s stakes.

Two other core shareholders, BBVA and Logista, have decided to sell their stakes in Iberia of 7 per cent and 6.5 per cent respectively.

The collapse of the TPG-BA consortium’s bid approach was expected to follow Monday’s announcement by BA that it was not going to exercise its pre-emptive rights to acquire any of the Iberia shares held by BBVA and Logista.

That has left the way open for Caja Madrid to increase its stake in Iberia from 10 per cent to 23 per cent to become the largest single shareholder. BA said the savings bank was paying €3.60 for the additional Iberia shares.

Iberia shares were suspended on Monday afternoon at €3.14, down 1.9 per cent from Friday.

BA has a close commercial relationship with Iberia. Both are members of the Oneworld global airline alliance, they code-share on about 40 routes and have a profit-sharing joint venture on London-Spain trunk routes.

Keith Williams, BA chief financial officer, said the airline’s position as “Iberia’s key industrial partner remains important and is not dependent on an increase in shareholding”. BA had always ruled out taking part in a hostile bid.

The expected withdrawal of the TPG-BA consortium leaves the future ownership of Iberia uncertain. It is a blow to the management of the Spanish flag carrier, which has made clear its ambition to take part in the expected further consolidation of the European airline industry. This has been led by Air France’s takeover of KLM of the Netherlands and Lufthansa’s takeover of Swiss.

In an interview a year ago with Expansion, the Spanish financial daily, Enrique Dupuy, Iberia chief financial officer, said consolidation in Europe was inevitable.

“Everything points to three large European airline groups with a global presence,” he said. “Air France-KLM, Lufthansa and, probably, BA. We are going to be [in] one of them.”

Both the French and German airlines are following the Iberia saga closely and have expressed possible interest, while waiting to see whether a formal bid would emerge from the TPG/BA consortium.

However, Caja Madrid has shown its determination to keep the airline out of foreign hands.

It was believed that Caja Madrid would eventually sell its 10 per cent stake, and at one stage sounded out investment bankers about other possible buyers.

But with general elections scheduled for March, the bank has recently adopted a more political stance, bowing to pressure from the centre-right regional government of Madrid to defend the flag carrier and the capital’s Barajas airport from foreign-led takeovers.

Gala Capital, a private equity firm which is leading a separate approach to Iberia’s core shareholder group, has made a virtue of its all-Spanish composition.

According to people close to the group, Gala and its partners are also willing to work with Caja Madrid. The consortium recently presented an indicative offer of between €3.6 and €3.9 and asked for access to the airline’s books.