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BA-owner IAG says considering making offer for Norwegian

Reuters  |  LONDON 

By Sarah Young

LONDON (Reuters) - British Airways-owner IAG said it is considering making an offer for Norwegian, a low-cost carrier worth about $1.2 billion, in a deal which would expand its budget offerings and give it control of a struggling rival.

IAG said on Thursday it had bought a 4.61 percent stake in as a platform for starting talks, and that could lead to it making a full offer for the founded by former fighter

"IAG confirms that no such discussions have taken place to date, that it has taken no decision to make an offer at this time and that there is no certainty that any such decision will be made," IAG said in its statement.

Shares in Norwegian, a stock which this year has been pounded over worries about its profitability, surged 37 percent on the https://reut.rs/2qqcSn6

A trailblazer of low-cost long-haul flying in Europe, has been leading the charge to eat into the trans-Atlantic market where traditional full-service carriers like have historically made most of their profits.

has already made its impact felt: and others have recently tried to compete more directly with by introducing basic economy fares.

But Norwegian's fast expansion has left it under pressure to control costs and shore up its balance sheet.

That has provided IAG, formed in 2011 through the merger of traditional flag-carriers and Iberia and led by Willie Walsh, with an opportunity, say analysts.

Seasoned deal-maker Walsh was much quicker than rival and to embrace budget flying, buying in 2015 and setting up IAG's own last year.

"has long been interested in the low-cost long haul concept, long before the creation of This may be an attempt to accelerate its development, while also adding to the scale and reach of in the intra-European market," said.

Adding Norwegian's short-haul operations in to would create a better placed to compete against the continent's two biggest low-cost airlines and

analysts said a full takeover could be expensive but suggested a partnership deal would benefit both parties.

"A partnership that looks to maximize the synergies of the two networks, minimise duplications of capacity and investment on key routes, and use IAG's to improve Norwegian's expertise in this area could all provide some of the benefits of consolidation without the likely high cost of a deal," they said.

UNDER PRESSURE

Highlighting the difficult state of Norwegian's finances, the last month raised $168 million in a share sale after warning of a larger than expected first-quarter loss.

said in its statement on Thursday that it had no prior knowledge of IAG's actions, but welcomed the investment.

"believes that IAG's interest in the company confirms the sustainability and potential of our model and global growth," it said.

Norwegian's shares, temporarily halted after the IAG news, rose as much as 39 percent to 250 crowns when they resumed trading, valuing the company at 9.5 billion crowns ($1.22 billion).

Whether it proceeds with an offer for or not, through its new investment, IAG will at least be well-placed to influence its rival.

"If there is no imminent bid for Norwegian, IAG is just the first vulture to have landed that would like a say in how Norwegian's long-distance fleet ... is dismantled and sold," said.

There will be no buying on the cheap, however, said

Even after Thursday's rally, Norwegian's founder and top owner, Kjos who controls a quarter of the company's shares, is expected to demand a significantly higher price before selling, said Korsvold.

Kjos was not available for comment when contacted by

IAG's interest in would see a wave of consolidation in European which started last year extend its reach to

and expressed interest in Italy's struggling this week.

last month agreed to buy a majority stake in a new Austrian founded by former champion Niki Lauda, while bought a parts of failed last year.

Shares in IAG initially dropped 3.4 percent on the before recovering to trade down 0.7 percent at 611 pence. The company has a market capitalisation of about 12.6 billion pounds ($17.89 billion).

($1 = 7.7844 crowns)

($1 = 0.7043 pounds)

(Reporting by Sarah Young, additional reporting by Terje Solsvik and Ole Petter Skonnord in OSLO and Victoria Bryan in BERLIN,; editing by and Adrian Croft)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, April 12 2018. 20:03 IST
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