Norwegian Plays Coy, Rejects Two IAG Bids Despite Clear Interest In Buyout

In mid-April IAG (the parent company of British Airways) acquired a 4.61% ownership stake in Norwegian. This seemed to come out of left field, as there weren’t really rumors of this leading up to the announcement. British Airways also expressed interest in the possibility of a full takeover of Norwegian. This isn’t much of a surprise, at least long term — Norwegian is trying to grow but is losing money, while British Airways is hugely profitable and views Norwegian as their biggest competitor. It’s only natural that they’d love to eliminate their biggest competitor.

Initially Norwegian management said that they had no interest in being acquired, though I think it goes without saying that every airline has a price. Today it has been announced that Norwegian has turned down two separate 100% takeover bids from IAG. Here’s Norwegian’s press release:

The Board of Norwegian Air Shuttle (NAS) confirms that it has received two separate conditional proposals from IAG Group in relation to an acquisition of 100 percent of the share capital of NAS.

These proposals were reviewed in conjunction with NAS’ financial and legal advisers, and were unanimously rejected on the basis that they undervalued NAS and its prospects. The Board of NAS remains fully committed to delivering on its stated strategy, for the benefit of all NAS shareholders.

Some might think “yay, maybe Norwegian won’t be taken over by IAG after all.” My take is very different, especially reading between the lines. Previously Norwegian’s management expressed no interest in a takeover (regardless of the price), while now they say that the proposal was unanimously rejected on the basis that it undervalues the company.


Norwegian’s 787 premium economy, which has been a great value for consumers

I think the conclusion here is inevitable — IAG has loads of cash, and Norwegian isn’t doing great financially. At this point it’s no longer a question of whether IAG will take over Norwegian, but rather it’s a matter of the price they’ll pay. I’d be shocked if this deal wasn’t finalized in the next few weeks (unless Norwegian plays hardball and strings them a long a bit longer, since they know they have leverage).

Once the deal is complete, the question will be what exactly IAG wants to do with Norwegian. They can:

  • Continue operating Norwegian independently as a brand, given that it’s generally well liked, while making it complement British Airways, rather than compete with it
  • Integrate Norwegian into LEVEL, so they get rid of Norwegian overnight and have planes to operate a new mega low cost carrier
  • Simply take Norwegian planes and transfer them to British Airways (which seems most unlikely, since they’ll no doubt want to have planes they can operate on a lower cost basis, which isn’t happening if the planes fly directly with British Airways)


Could Norwegian 787s eventually join the LEVEL fleet?

No matter how you slice it, this takeover would be terrible for consumers.

What’s your read on this situation?

Comments

  1. If they decide to combine LEVEL and Norwegian, I wouldn’t be surprised if they drop the LEVEL name… Norwegian has a ton more brand recognition.

  2. If Norwegian is well liked and has established market presence, customer base, and brand recognition, whey not shut down or integrate LEVEL into Norwegian & keep the brand. IAG can even help Norwegian brand by allocating some of BA’s landing slots and gates to Norwegian to help it grow.

  3. The one major problem with this take over is anti-trust especially European anti-trust which is usually more strict than the US, I have no doubt IAG and Norwegian could agree on a price. Look at Lufanthsa bid for Niki which was denied, given no one else fly long-haul from London as a home base I could see this having some major anti-trust problems. They will also have major anti-trust issues in Nordic countries where really the only other player is SAS. T

  4. What? Unless I’m missing something, Lucky you are completely misreading.
    Management is not the board. Two different concepts. The board (obstensibly) represents shareholders and appoints the board. This is just boilerplate legal CYA language and required if a bid is rejected. The board must be the one to reject the bid, not management. And, due to their fiduciary responsibility to shareholders, they just reject it on the bases of not providing enough value to shareholders. This is literally boilerplate language for a deal rejection.

    These things have a legal process, it’s not just like TMZ press releases determine the fate of boardroom drama.

    You may turn out to be right. IAG has every reason to neuter Norwegian, and Norwegians delivery slots are indeed valuable. But if this whole “the wording has changed!” reason is the only reason you feel that way, it’s just totally wrong analysis!

  5. I’m curious if there are any thoughts on how this impacts whether/when we should buy tickets on Norwegian? I’m planning a trip to the UK in the fall and the prices on Norwegian are dirt cheap. I have a few things I need to sort out before booking, but I’m wondering if there’s a risk that prices would rise in the event of an IAG buyout?

  6. it’s gonna be a tragic day for travelers if IAG successfully buys out Norwegian then decimate it into another also-ran like LEVEL or JOON.

    IAG didn’t care at all earlier, but once they realize Norwegian is mounting a truly credible threat at LGW for anyone not beholden to FF and for their broader transatlatic JV, they’re now doing everything they can do neuter DY and return the Atlantic to IAG’s vision in which the 3 JVs control 85+% of seats, offers oligopoly pricing, and stop bothering with being competitive since they know LHR is a singularity when it comes to business travel.

    On top of that, DY is now also very appealing for those originating from the US-side. From 3 airports of the greater-NY region (JFK EWR SWF), Norwegian now flies nonstop to more European destinations than AA on its own metal (and i’m already excluding those bespoke Caribbean flights).

  7. Regulators should permit it, only if they make IAG drop its joint venture w/ AA. While they’re at it, they should break up the other joint ventures too.

  8. I’ve just had two GREAT flights on Norwegian this week and I can’t help feeling dread about the prospect of an IAG takeover.
    – Boarding was super efficient on both occasions (DY even boards their 737s through both doors at some stations, using both the jet bridge and rear stairs)
    – Got moved up to row 1 free of charge
    – Nice clean planes with Boeing’s Sky Interior and decent seats
    – Free wi-fi worked nicely on both flights
    – We’ve had spectacular crews and there were useful updates from the flight deck
    – DY’s customer care resolved a misspelled passenger name swiftly and at a very short notice; via Facebook Messenger, no less!

    Which European legacy airline has this?! None, I tell ya.
    I don’t want to see BA/IB get their dirty paws on this!

  9. @ Jack

    “They will also have major anti-trust issues in Nordic countries where really the only other player is SAS.”

    You may be right but I’m struggling to see why.

    At the momemt SAS competes with Norwegian, which has low fares but an uncertain future because it’s losing money. If IAG takes over, SAS will have the same competitor – but backed by hugely rich IAG, so a more certain future.

    In that market, the latter sounds better for passengers than the former.

    The competition authorities are more likely to be exercised in the UK (I’d expect slots at LGW to be very carefully looked at) but the competition from easyJet and Ryanair is so intense that I wouldn’t expect problems for an IAG takeover.

  10. The Nice Paul – I generally agree with that, but it’s important to note Norwegian are rapidly expanding long haul flights from London – an area where there is much more limited competition.

  11. @ Callum

    Yes, I’d agree with you – it’s why I said I’d expect particular attention to be paid to LGW, where BA already has slot dominance, because of the long-haul flights.

    It may be a requirement of the competition authorities that some of those LGW slots are given up (ie, sold) to other airlines, as a condition of merger approval.

  12. Two things:
    1: the board is Mr Kjos’ hand picked puppets. Kjos runs the show.
    2: it would be great if IAG gets Norwegian into IATA so they can offer the same security in case of cancellations. At the moment Norwegian offer free rebooking to first DY flight within 14 days if there are seats available or full refund (so you may buy your own new and expensive ticket).
    I do not fly DY if there are decent options due to my point nr 2. There are too many stories about a sub standard customer support in cases of cancellations

  13. Yes it would be a very sad day indeed. Does the co-signers of Norwegians plane financing deals allow this or will IAG assume there debt do really IAG have access to that kind of cash (as Norwegian do )

  14. @ erik a

    IAG is sitting on a massive cash pile (it is hugely profitable). It can easily afford this.

  15. Lucky, thanks for an interesting update. In your last sentence you conclude “this takeover would be terrible for consumers” and certainly a lot of commenters here seem to agree. But you are missing a broader point: consuners we’re going to lose out NO MATTER WHAT HAPPENS with the IAG takeover.

    The options for Norwegian here are:
    1) Go Bust
    2) get bought out (probably by IAG)

    Norwegian has never had a viable business plan, they are effectively just setting money on fire by selling seats across the Atlantic at prices far below their own costs. This can’t conitnue and will certainly go away in any case.

    So please let’s be clear this narrative isn’t “big bad IAG destroying a plucky upstart to screw the consumer”. I actually think the IAG takeover might be the least bad option. If they maintain Norwegian as a separate brand (or merge it with Level) it could allow them to finally start taking BA more premium again, and imagine if Norwegian ultimately was connected into the Avios ecosystem. Of course the insane rock-bottom fares and unsustainable routes would disappear (which will happen anyway) but I think IAG would maintain a it as low cost carrier.

  16. @Donna

    Why? So that When IAG overpays they will be forced to sell off even more of Norwegian’s planes and routes to recoup their investment?

  17. @Kerry

    Dream on! Do you really believe IAG is interested in providing bargain travel on additional routes or perhaps eliminating the competition???

  18. @Donna

    I think it’s essentially an irrelevant question whether IAG is interested to provide bargain travel. My whole point is that they don’t need to “eliminate” the competition because Norwegian is doing a perfectly good job of eliminating themselves.

    Therefore the least bad option is an IAG takeover at a level that allows them to maintain a fair amount of existing Norwegian routes/infrastructure.

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