IAG Is Considering Another Takeover Bid For Norwegian

Last month came the surprising news that IAG, the parent company of British Airways, had bought a stake in one of their biggest competitors, Norwegian. There were rumours that this could lead to IAG then launching a full takeover bid for Norwegian, which could have various consequences. If this happened, would IAG:

1. Kill off Norwegian and convert their 787s to BA mainline; or
2. Convert Norwegian planes to LEVEL/Vueling and maintain the routes; or
3. Keep Norwegian operating based on its good reputation but use their size and experience to make it more profitable.

Sure enough, only a few weeks later it was revealed that IAG had made two separate full takeover bids for the airline, both of which Norwegian had rejected, as they felt that the takeover offer undervalued the airline. These are all pretty standard negotiating tactics in the acquisition world – Norwegian is simply holding out for IAG to pay more for the airline.

If IAG offers enough, it is unlikely they will say no. It’s just like if someone offered you a certain amount for your most prized possession – you don’t want to sell it, but ultimately everything has a price.

The next step

Well, now comes the news that IAG may be preparing to make a third takeover bid, and is offering a significantly higher price. Spanish newspaper Expansion is reporting that IAG is preparing to offer Norwegian NK330 per share for a full takeover, which is about USD40 per share, valuing the airline at around 1.52 billion Euros. This represents a 40% premium over the current market price for Norwegian shares, and I suspect will be much harder for the Norwegian board, and shareholders, to refuse.

IAG’s strategy here is interesting. Head For Points has reported previously that IAG is not known to overpay for acquisitions, and Rob, H4P’s experienced editor, would know, as he spent decades working in this exact mergers and acquisitions space. Given Norwegian is not a profitable airline, to the point that Ryanair CEO Michael O’Leary has previously said they are so cash poor that they will stop operating within months, it seems crazy for Norwegian to refuse a generous takeover bid.

Bottom line

As I’ve said before, it will be a very sad day for Europe, especially London-based travellers, if IAG acquires Norwegian. I flew Norwegian short-haul again a few days ago, and it reminded me why they are the best low-cost carrier in Europe.

While the optimist in me says they will keep Norwegian’s excellent reputation and brand-recognition, and build the brand as their low-cost arm, I think it is more likely they will kill the brand/competition completely and either sell the planes or convert them to another brand (British Airways, LEVEL etc).

If I had to put money on it, I would bet that this third bid will be successful. IAG is obviously serious about acquisition, and while Norwegian’s owners and directors obviously think the brand is priceless, they need to be realistic about their financial future.

Watch this space.

Do you think IAG’s rumoured third takeover bid of Norwegian will be successful?

Comments

  1. I think that they will probably keep the Norwegian brand, at least in the UK where it is very popular, but will do some significant cost cutting so that it is effectively on a par with easyJet and Ryanair. Perhaps they might even merge LEVEL and Vueling into it…

  2. Why do you point out London-based travelers in particular, when Norweigan is the largest airline operating in Scandinavia? Especially in Norway and Denmark?

    Daily there are 60 departures between Trondheim and Oslo, shared almost 50%/50% between SAS and Norwegian, while Bergen has 68 departures between the same two cities. This is just a small part of Norweigan routes with high frequency in Scandinavia. Is suddenly Vueling or BA now going to fly domestic routes in Scandinavia?

    To my point: killing off the Norwegian brand? No way that is happening. I don’t really think you have any idea of the magnitude of Norweigans operations outside of their Gatwick-base. For instance, you haven’t even mentioned their Argentinian and South American growth and expansion plans in what probably is a hugely underserved market.

  3. @ Johannes – because IAG is undoubtedly most interested in/threatened by Norwegians 787 operations from London Gatwick. BA launched flights to Oakland and Ft Lauderdale to try and compete.

    From Scandanavia, especially intra-Europe they are not as much of a threat because they don’t compete with any IAG brands on the same routes.

  4. “make it more profitable”

    It’s LOSS making. You don’t make something loss making “more” profitable; you either make it profitable or you don’t.

    I really do not understand the naive attitude of some that Norwegian are the saviour to UK long haul travellers.

    Norwegian are the pariah of commercial aviation.
    They cherry pick the most profitable routes of operators which have nurtured and developed their networks over decades.
    They trade on false economics.
    They sell unsustainable cheap seats with fundamentals clouded in smoke and mirrors, flags of convenience and cheap employment contracts, yet still only manage to fly 2/3rds empty 787-9s to SEA.
    They operate a model which can not sustain them in the long term and which in the short term is harming other carriers unnecessarily.
    Norwegian is flawed and has to go.
    Good riddance.

  5. @Mike I flew Norweigan r/t SEA-LGW in February (hardly peak travel season) and the flights were almost full in both directions. It’s hard for me to imagine their SEA flights are regularly 2/3 empty.

  6. Norwegian should be the ones the US3 targets on their low and unsustainable pricing as well as receiving subsidies from underserved airports. They unknowingly drove down not only the prices of legacy carriers but standards of the soft products as well.

  7. So the JFK-London profit machine will now only be AA/BA vs DL/VS unless B6 buys some 330s, and starts more than 1 or 2 frequencies with them. The fares and profits are going to sky rocket.

  8. I don’t believe the name will change if/when the takeover is complete. Remember, BA bought IB then changed the company name to IAG, kept the brand names as they were but streamlined some parts of the business, as they did with EI. I don’t see any reason they’d sacrifice a strong brand, history shows that.

    They will however, make the airline profitable. As we can see with the price of rising oil, Norwegian’s model would be simply unsustainable and sensitive to spikes in oil prices.

    I don’t think Norwegian fans should worry too much, BA knows a good thing when it sees it.

  9. I don’t see why IAG wouldn’t run Norwegian as a standalone company. The only airline they bought and, partially, closed was BMI.

    Gatwick aside there’s, surely, not that much of an overlap that would justify spending that much on an asset and then dismantling it? They might run into some slot issues at Gatwick but, even with the combined IAG and Norwegian slots they’d still have less than EasyJet. What they’re going to do with these slots is a different question. The FT reported a few days ago that they (IAG) have ‘leased’ some slots they got from Monarch to Thomas Cook and Qatar – apparently for no consideration. So they already have a surplus of slots without the aircraft/ routes to fill them.

    I would have thought that the fledgling LEVEL would be folded into Norwegian – though what French and Spanish unions would have to day about that is a whole different question.

    The only tempting asset Norwegian have is their future deliveries for 737 MAX 8’s and a few remaining 787s. As IAG have done in the past these could well be redistributed around the group whilst they slow Norwegians unsustainable expansion and try and turn a profit.

  10. Norwegian can’t be bought by IAG…..
    If this will happen then Norwegian will become like the BA of Norway….

  11. I’m much more worried about the impact on the non-London routes if IAG are successful. EDI-OSL is a fantastic direct route for positioning on the much better-priced ex-OSL flights, I really don’t want to have to fly via London to get there when I’ll be doing it on the main booking anyway!

  12. BA keeps the Norwegian name/brand/routes kills Level. Sells off older 777s and uses Norwegian to expand in Paris and Italy

  13. “IAG is not known to overpay for acquisitions, and Rob, H4P’s experienced editor, would know, as he spent decades working in this exact mergers and acquisitions space …… it seems crazy for Norwegian to refuse a generous takeover bid.”

    Those lines directly contradict each other. If IAG doesn’t overpay then it can’t really be a generous bid. If it is a generous bid they’d be crazy to turn down, IAG must logically be overpaying.

  14. “Given Norwegian is not a profitable airline, to the point that Ryanair CEO Michael O’Leary has previously said they are so cash poor that they will stop operating within months, it seems crazy for Norwegian to refuse a generous takeover bid.”

    Ummm… you’re really taking Michael O’Leary’s words regarding Norwegian for being the truth? Let’s see…

    2007: O’Leary says Norwegian is too small to stand on its own feet, and will be acquired by SAS. Reality: Today they are bigger than SAS, and SAS does certainly not have the financial power to acquire them.

    2009: O’Leary says Norwegian will be bankrupt within 5 years. Reality: The next five years (and beyond) they were profitable all the way. (In fact, SAS was the company that almost went bankrupt, and Norwegian was asked by the Norwegian government if they would be interested in acquiring SAS. Norwegian said no.)

    September 2017: O’Leary says Norwegian will be out of business in 4-5 months and will not “survive the winter”. Reality: Wrong. They did an equity issue but that is far from the same as going out of business.

    O’Leary has an incentive to put down Norwegian as they’re taking his pilots and executing on low-cost long-haul which was an opportunity he completely missed.

Leave a Reply

Your email address will not be published. Required fields are marked *

* I consent to the collection of my name, email address, and content so that One Mile at a Time may manage comments placed on this site.