Here are the key details of the memorandum of understanding for a proposed “merger of equals” between BA and Iberia. And, my, does it look complex.
A new holding company (TopCo) will be created that will own both the existing airlines. BA shareholders will get one share in the combined company for every existing share they hold in BA; Iberia shareholders (IBLA) will get 1.0205 shares in the enlarged company for every Iberia share they hold.
BA shareholders will own 55 per cent and Iberia 45 per cent of the combined business, which will be led by Willie Walsh. Curiously, the proposed merger will not be subject to the UK Takeover Code.
– The airline will be registered in Madrid, with its main offices in London.
– The agreement is subject to regulator and shareholder approvals.
– Iberia will be entitled to terminate the deal “if the outcome of the discussions between BA and its pension trustees is not, in Iberia’s reasonable opinion, satisfactory”.
– TopCo will be incorporated in Spain (tax residence) but the operating and financial HQs will be in the UK.
– TopCo board will consist of 14 members, 11 of them non-executive directors – Antonio Vazquez will be group chairman, Martin Broughton deputy group chairman and Willie Walsh group CEO.
– There will also be two OpCo boards (one BA, one IBLA) that will comprise nine directors, of whom five will be executives. The reason for the OpCo board is as follows:
An ownership and governance structure (“National Control Structure”) has been developed to ensure that the existing route licences and traffic rights of both British Airways and Iberia are retained. For the first five years following completion of the transaction, the majority of the voting shares in British Airways and Iberia will be owned by special UK and Spanish bodies respectively (“National Bodies”). These shares will have minimal economic rights.
– €400m est. annual synergies by end of year 5, at up to €350m cash cost.
– 1/3 revenue synergies: joint selling, network, revenue management.
– 2/3 cost synergies: IT, fleet, maintenance, BO.
– Signing of definitive merger agreement.
– Appropriate confirmations from Spanish and UK CAA’s as well as CNMV as to suitability of structure, including no condition to prevent TopCo from UK primary listing and FTSE inclusion.
– Limited confirmatory due diligence.
Conditions to merger agreement:
– Appropriate antitrust and regulatory clearances.
– IBLA + BAY shareholder approvals.
– IBLA entitled to terminate if discussions between BAY and pension trustees not satisfactory in IBLA’s reasonable opinion = materially detrimental to economic premises of merger.
– €20m payable under certain circumstances.
– Completion in late 2010.
– National Control Structure’ established to ensure continuity of existing routes and licenses.
-For first 5 years, majority of TopCo to be held by ‘National Bodies’ with minimal economic rights.
– Network to be developed around London + Madrid hubs.
– Labour relations to be handled locally.
– NO guarantee from TopCo or IBLA to fund BAY pension schemes.