Avianca Drops Most Since October After M&A Bets Fuel 32% Rally

  • Shares have gained this month after reports of takeover plans
  • Chairman Efromovich said looking for partner, strong alliance

Avianca Holdings SA dropped the most in seven months, paring a rally that was sparked by speculation other airlines may seek to acquire a stake in the company, after Chairman German Efromovich said he’s currently seeking a partner rather than a buyer for the company.

The stock dropped 7 percent to 2,475 pesos at 1:15 p.m. in Bogota trading, the most since October. The shares had advanced 32 percent this month through Wednesday amid speculation Avianca will find a partner or might be a takeover candidate.

Efromovich on Thursday said that the airline is looking for a strategic partner, which could be a part of one of the airline alliances or a large Chinese investor. The deal could include an investment equal to a 10 percent to 20 percent stake, the value of which wouldn’t be based on the airline’s current book value, he said. In an interview on W Radio, Efromovich said that at this moment he isn’t selling Avianca but instead looking for a strong alliance that would improve the company over the long haul.

“The bottom line after such a rise is that people aren’t convinced about the takeover rumors,” Rupert Stebbings, the managing director of equity sales at Bancolombia SA, said from Medellin. A lot of investors “sat on profits so they are selling.”

Avianca jumped the most on record on June 3 amid reports that Delta Air Lines Inc. and United Continental Holdings Inc. are weighing bids for the Latin American airline. Avianca was exploring strategic options including a full or partial sale, people familiar with the matter said at the time. Avianca recently began working with a financial adviser to raise about $500 million in a process that could lead to an outright sale, said one of the people, who asked not to be identified because the matter isn’t public.

Ailing South American economies, the Zika virus and increased long-haul competition have hampered the financial performance of regional airlines, with many reporting net losses and negative cash flow. The deterioration is creating an opportunity for stronger U.S. and European carriers as they focus on the region’s longer-term potential, according to George Ferguson, a senior industry analyst for Bloomberg Intelligence

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