Struggling airline Flybe is set to be picked up in a basement bargain deal from a Virgin-led consortium that values the budget business at just £2.2m.
Shares were sent crashing 80 per cent this morning on news of the offer from Virgin Atlantic, Stobart Aviation and US private equity firm Cyrus Capital Partners, which will leave shareholders with just a penny per share - a far cry from Thursday's closing price of 16.38p.
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Under their shared Connect Airways firm, the trio will also provide a £20m bridging loan for Flybe, whose profits plummeted by 54 per cent at the end of 2018.
This will support the airline’s ongoing operations until the takeover is complete, when the firms will put another £80m into the business to support its growth.
Flybe’s October profit warning wiped £20m off its market capitalisation, while its 48p share price in March 2018 had shedded value to hit just 11p in November, before interest from larger airlines helped push it up to 16p.
The Exeter-based airline suffered from lower demand, coupled with rising fuel costs and currency headwinds, as well as an expensive overhaul of its IT systems.
“The industry is suffering from higher fuel costs, currency fluctuations and significant uncertainties presented by Brexit,” Christine Ourmières-Widener, chief executive of Flybe, said.
“We have been affected by all of these factors which have put pressure on short-term financial performance. At the same time, Flybe suffered from a number of legacy issues that are being addressed but are still adversely affecting cashflows.”
“By combining to form a larger, stronger, group, we will be better placed to withstand these pressures,” she added. “We aim to provide an even better service to our customers and secure the future for our people.”
Virgin Atlantic will count itself the victor after reports of a bidding war between Sir Richard Branson and International Airlines Group boss Willie Walsh sent Flybe shares rocketing back up in late November.
Virgin Atlantic chief executive Shai Weiss, whose firm is being advised by Rothschild, said: “Together, we can provide excellent connectivity to our extensive long haul network and that of our joint venture partner, Delta Air Lines, at London Heathrow Airport and Manchester Airport for the benefit of our customers.
“In the near future, this will only increase, through our expanded joint venture partnership with Air France-KLM.”
Advised by Evercore, Flybe’s board recommended that shareholders accept the offer when it goes to a vote at Flybe’s next general meeting, saying the terms of the offer are “fair and reasonable” and that passing it is “in the best interests of Flybe shareholders”.
Warwick Brady, boss of Southend Airport owner Stobart Group, advised by Barclays, said the takeover is an “excellent opportunity” to grow passenger numbers at the airport, and to “play an active role in UK regional flying”.
Lucien Farrell, partner of Cyrus, which helped Virgin sell its Virgin America arm to Alaska Airlines last year, added: “We believe Flybe's UK regional focus and high quality management, together with Virgin Atlantic's dedication to the best customer experience and Stobart Group's expertise in regional flying, will produce a world-class airline.”
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Morgan, Lewis & Bockius is advising Cyrus on the acquisition, while Hill Dickinson is acting as a legal adviser to Stobart Aviation.
The acquisition is expected to close in the second quarter of 2019 if 75 per cent of shareholders vote it through.