IAG, Globalia abandon Air Europa deal
By Michele Maatouk
Date: Thursday 16 Dec 2021
(Sharecast News) - IAG said on Thursday that it has agreed with Spain's Globalia to terminated an agreement to buy rival Air Europa - a decision that will cost the British Airways and Iberia owner €75m.
The confirmation came a day after IAG said it was in advanced talks with Globalia about a possible cancellation of the deal.
"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," it said.
IAG agreed in 2019 to buy Air Europa for €1bn, but the price was reduced to €500m earlier this year after the travel sector took a hit from the pandemic.
In addition to the previously agreed break-fee of €40m, IAG will pay Globalia €35m. Both parties have agreed that these amounts will be applied to reduce any future purchase price if a new agreement is reached and to avoid any litigation relating to the deal.
IAG chief executive Luis Gallego said: "It is very disappointing that we have had to terminate the current agreement to acquire Air Europa but the decision makes sense due to the market conditions, the deep crisis resulting from Covid-19 and taking into account our desire to maintain a disciplined approach to capital allocation.
"However, we have committed to analyse alternative arrangements with Globalia that could deliver significant benefits. In the same way, we will continue to work with the Spanish Government to guarantee the connectivity of Spain and the development of the Madrid hub."
Laura Hoy, equity analyst at Hargreaves Lansdown, said: "British Airways parent IAG has officially terminated its Air Europa acquisition, but the group hasn't closed the door completely to expanding its Spanish presence by partnering with the struggling airline. The two say they'll evaluate alternative combination options over the next few weeks and put the €75m IAG paid for backing out toward any future deals.
"This could be IAG's way of hedging its bets as Omicron variant concerns rise. Tougher restrictions in January would signal more turbulence again, particularly for long-haulers like IAG. However if the new variant isn't as dangerous as believed, the group still has a foot in the door to restart the acquisition - or some version of it.
"Ultimately we see that as unlikely. IAG has to be careful with its cash even in a best-case scenario and buying up a debt-laden competitor doesn't exactly fit in with that strategy."
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