British Airways has made two takeover bids for low-cost rival Norwegian Air in a move that could spark a bidding war for the budget carrier.
Norwegian, which is valued at around £1billion, revealed it had received two separate offers from BA’s owner IAG, but were rejected because they ‘undervalued’ the airline and its prospects.
IAG’s chief executive Willie Walsh confirmed it has been in talks with Norwegian but said there were unlikely to be any further announcements in the coming weeks.
Speculation about a possible merger has been rife since it was revealed IAG had taken a stake in Norwegian, which has upset the more established transatlantic players by offering cheaper flights to the US.
Raiding the Vikings: British Airways has made two takeover bids for low-cost rival Norwegian Air
Experts said Norwegian’s rejection could prompt a battle among rivals to snap up the firm, which is owned by former fighter pilot and spy novelist Bjorn Kjos.
Neil Wilson, chief market analyst at trading platform Markets, said a bidding war ‘depends on IAG’s appetite to do a deal whether it ups its offer’.
He added: ‘We also await to see if there are other suitors but if so this is less than ideal for IAG since it will be desiring to defend its transatlantic operations from further competition without abandoning its disciplined approach to such matters.’
IAG, which also owns Vueling, Iberia and Aer Lingus, built up a 4.6 per cent stake in Norwegian last month. Norwegian said it received interest from ‘multiple players’ after IAG took the stake.
Norwegian was formed in 1993 from a bankrupt regional airline and is now Europe’s third-largest low-cost operator, with more than 500 routes to 150 destinations.
Pricing on low-cost, long-haul flights has heated up after Norwegian started offering cheaper prices for longer flights.
It has return flights from London to New York for as little as £270 and a non-stop service from London to Buenos Aires starting at £259.90.
The cheap deals have piled pressure on traditional carriers like British Airways.
Norwegian, which is valued at around £1bn, revealed it had received two separate offers from BA’s owner IAG, but were rejected because they ‘undervalued’ the airline and its prospects
Last year IAG launched budget long-haul airline Level to fight back against. Details of IAG’s proposed bids were not revealed but analysts have estimated that an acquisition could cost IAG more than £2.5billion.
Norwegian is worth around £952million but a deal would also include its £2billion debt.
Asked whether loss-making Norwegian could grow successfully as a stand-alone business under its current strategy, Walsh said: ‘No.’
Bernstein analyst Daniel Roeska said: ‘It is likely that IAG refused to offer a huge premium and the defiant rejection by Norwegian suggests the intersection between what a rational IAG will pay for a heavily loss-making airline, and what the Norwegian board considers acceptable, is very small, or likely non-existent.’
IAG’s latest results showed a 75 per cent surge in profits to £247million (€280million) in first three months of the year, coming in way ahead of analyst expectations.
Revenues edged up 2.1 per cent to £4.42billion after it benefited from early Easter.
Walsh, 56, said yesterday he will continue to review the situation with Norwegian.
‘We have had contact with the board which has not been successful and we’re now reviewing all of our options in relation to Norwegian,’ he said.
‘We haven’t made any formal offer to Norwegian and if there’s anything that we will be required to disclose, we will disclose it.
‘But I’m not expecting to say anything in the coming weeks in relation to this.’
A spokesman for Norwegian said: ‘The board remains fully committed to delivering on its stated strategy, for the benefit of all Norwegian shareholders.’
IAG shares closed up 5.8 per cent, or 37.4p, at 678p.