Vueling Top Investors Said to Decry IAG Offer as Too Low

British Airways (IAG) parent IAG SA’s bid for Vueling Airlines SA (VLG) is seen as too low by some of the target company’s top shareholders, two people familiar with the matter said, raising doubts about whether the plan will succeed.

IAG bid 7 euros a share for the 54 percent of Vueling it doesn’t yet own, 28 percent above the Nov. 7 close. Investors including Farringdon Capital Management SA, the second-largest, want 9 or 10 euros, a 66 percent premium, said the people, who asked not to be identified while the approach is being weighed.

Vueling also had 407 million euros ($517 million) in cash as of Sept. 30, and could opt to block the deal by paying a dividend that would make it less attractive, the people said. The Barcelona-based carrier, which has lured passengers with cheap flights as Spain is gripped by a sovereign-debt crisis, regards IAG’s interest as “positive,” it said yesterday while stopping short of recommending the offer.

“We’re set for a takeover game in which investors demand a higher price,” said Francisco Salvador, a strategist at FGA/MG Valores in Madrid. Since IAG’s bid needs approval by investors holding at least 90 percent of Vueling’s voting rights, the deal could be blocked if top shareholders hold out, he said.

Vueling, Spain’s biggest airline after IAG’s Iberia unit, closed down 0.3 percent at 6.83 euros yesterday in Madrid. That’s 17 cents below the price of the bid, made on Nov. 8.

Profit Jump

Farringdon, which has a 3.35 percent stake in Vueling, according to data compiled by Bloomberg, isn’t inclined to tender its stock at the current level, one of the people said. The Geneva-based company declined to comment.

IAG, as International Consolidated Airlines Group SA is known, owns 45.85 percent of the smaller airline.

Vueling’s nine-month earnings before interest and tax jumped 80 percent to 53 million euros, versus a 262 million-euro operating loss at Iberia, which merged with BA to form IAG in January last year. Earnings are likely to increase at least 10 percent next year, the low-cost carrier said Nov. 7.

Growth rates at Vueling are such that it might anyway reach 10 or 12 euros a share within six months, said Luis Benguerel, a trader at Interbrokers in Barcelona. The bid is also negative for the many investors who bought at a higher price, he added.

Vueling shares that fell 60 percent in 2011, having started the year at 9.79 euros, had advanced 41 percent this year even before this week’s bid.

IAG Chief Executive Officer Willie Walsh said yesterday he aims to eliminate 4,500 jobs at Iberia -- more than one-fifth of the total -- to help deliver a 600 million-euro turnaround in earnings by 2015. More flights will be transferred to the new Iberia Express business, he said, adding that there are no plans for a merger with Vueling, which would operate independently.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

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