TIDMIAG
RNS Number : 1144S
International Cons Airlines Group
04 November 2019
Agreement for the acquisition of Air Europa for EUR1 billion
International Consolidated Airlines Group ("IAG") and Globalia
("Globalia") are pleased to announce that definitive transaction
agreements have been signed under which IAG's wholly owned
subsidiary, IB OPCO Holding S.L. ("Iberia"), has agreed to acquire
the entire issued share capital of Air Europa ("Air Europa") for
EUR1 billion to be satisfied in cash at Completion (the
"Acquisition") and subject to a closing accounts adjustment.
Highlights
-- Transforms IAG's Madrid hub into a true rival to Europe's
four largest hubs: Amsterdam, Frankfurt, London Heathrow and Paris
Charles De Gaulle.
-- Re-establishes IAG as a leader in the highly attractive
Europe to Latin America and Caribbean market.
-- Offers significant synergy potential in terms of cost and revenue.
-- EPS accretive in the first full year and accretive to IAG's
return on invested capital by the fourth year after Completion.
-- Completion is expected to take place in H2 2020 following receipt of relevant approvals.
Commenting on today's announcement, Willie Walsh, Chief
Executive of IAG, said:
"Acquiring Air Europa would add a new competitive, cost
effective airline to IAG, consolidating Madrid as a leading
European hub and resulting in IAG achieving South Atlantic
leadership, therefore generating additional financial value for our
shareholders.
IAG has a strong track record of successful acquisitions, most
recently with the acquisition of Aer Lingus in 2015 and we are
convinced Air Europa presents a strong strategic fit for the
group."
Javier Hidalgo, Chief Executive of Globalia, said:
"For Globalia, the incorporation of Air Europa to IAG implies
the strengthening of the company's present and future that will
maintain the path followed by Air Europa in the last years. We are
convinced that the incorporation of Air Europa to a group such as
IAG, who over all these years has demonstrated its support to the
development of airlines within the group and the Madrid hub, will
be a success".
Luis Gallego, Chief Executive of Iberia, said:
"This is of strategic importance for the Madrid hub, which in
recent years has lagged behind other European hubs. Following this
agreement, Madrid will be able to compete with other European hubs
on equal terms with a better position on Europe to Latin America
routes and the possibility to become a gateway between Asia and
Latin America."
Strategic rationale
Air Europa is one of the leading private airlines in Spain,
operating scheduled domestic and international flights to 69
destinations, including European and long-haul routes to Latin
America, the United States of America, the Caribbean and North
Africa. In 2018, Air Europa generated revenue of EUR2.1 billion and
an operating profit of EUR100 million. It carried 11.8 million
passengers in 2018 and ended the year with a fleet of 66
aircraft.
The Board of IAG believes that the transaction would:
-- Increase the importance of IAG's Madrid hub, transforming it
into a true rival to Europe's big four hubs: Amsterdam, Frankfurt,
London Heathrow and Paris Charles De Gaulle;
-- Unlock further network growth opportunities and re-establish
IAG's South Atlantic leadership; and
-- Result in significant customer benefits through providing
increased choice and schedule flexibility and greater opportunities
to earn and redeem miles.
The Air Europa brand will initially be retained and the company
will remain as a standalone profit centre within Iberia run by
Iberia CEO Luis Gallego. The managements of IAG and Iberia
anticipate opportunities to unlock value through the Acquisition
across three key areas:
-- Integrating Air Europa into the existing Iberia hub structure at Madrid;
-- Creating commercial links between Air Europa and other IAG
operating companies, in addition to inclusion into IAG's joint
businesses;
-- Integrating Air Europa onto the IAG platform of common services.
Synergies and financial impact
The Acquisition is expected to generate cost synergies across
selling, general and administrative expenses, procurement, handling
and distribution costs with full run-rate synergies to be achieved
by 2025. IAG expects implementation costs to be phased over the
same period.
In addition, the Acquisition is expected to generate significant
revenue synergies by 2025, including:
-- Adding reciprocal intra-group codeshares across all connecting gateways;
-- Adjusting timings to maximise connectivity through the Madrid hub;
-- Aligning commercial policies and integrating sales forces in home markets;
-- Integrating Air Europa into existing IAG joint businesses; and
-- Integrating Air Europa into the Avios currency for loyalty.
The Acquisition is expected to be earnings accretive in the
first full year following Completion and accretive to IAG's return
on invested capital within four years after Completion.
Financing and expected timetable
The Acquisition will be funded by external debt. After
Completion, IAG's net debt to EBITDA is expected to be 0.3 times
higher as a result of the Acquisition compared to 1.2 times last
reported at the end of Q3 2019.
Assuming satisfaction of all conditions to the Acquisition,
Completion is expected to take place in 2H 2020.
IAG has agreed to pay Air Europa a break fee of EUR40 million in
the event that the transaction fails to receive the necessary
regulatory approvals and either party elects to terminate the
transaction agreement.
The Acquisition constitutes a Class 2 transaction for the
purposes of the UK Financial Conduct Authority's Listing Rules and,
as such, does not require IAG's shareholders' approval. The gross
assets of Air Europa at 31 December 2018 were EUR901 million. The
pre-tax profits attributable to Air Europa for the year ended 31
December 2018 were EUR67 million.
Steve Gunning
Chief Financial Officer
4 November 2019
LEI: 959800TZHQRUSH1ESL13
This announcement contains inside information and is disclosed
in accordance with the company's obligations under the Market Abuse
Regulation (EU) No 596/2014.
Analyst and investor presentation
A conference call for analysts and investors will be held today,
4 November 2019, at 7:30am UK time (8:30am CET). An audio webcast
of the presentation will be broadcast on the Investors and
shareholders section of our website (http://www.iairgroup.com).
Participant code: 9339679
Location Number
United Kingdom, London +44 2071 928000
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Spain, Madrid +34 914146280
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Ireland, Dublin +353 14319615
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United States, New York +16315107495
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France, Paris +33 176700794
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Germany, Frankfurt +49 6924437351
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Netherlands, Amsterdam +31 207143545
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Italy, Rome +39 687502026
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Switzerland, Bern +41 315800059
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END
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