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Air New Zealand increases interest in Virgin Australia - but no takeover intentions

27-Sep-2011 8:17 AM

Air New Zealand has (26-Sep-2011) increased its interest in Virgin Australia (Virgin Blue Holdings) from 14.99% to 19.99%. The increased stake was acquired at AUD29.7 cents per share. The increased interest is held through an equity derivative agreement with Deutsche Bank, which gives Air New Zealand an economic interest of up to 5% in Virgin Australia subject to certain conditions. One of the conditions is that such purchase does not cause Virgin Australia to breach its foreign ownership cap of 49%. Under the agreement, Air New Zealand is guaranteed a minimum additional exposure of 3.5% and up to a maximum additional exposure of 5%, which would take Air New Zealand’s total interest in Virgin Australia to 18.49% and 19.99% respectively. The outlay for the minimum exposure of 3.5% will be AUD23.0 million, while the outlay for the maximum five percent will be AUD32.8 million. Air New Zealand stated it plans to "bring its interest out of the derivative and into physical shares as soon as possible within the constraints of the foreign ownership cap." The purchase has received Australian Foreign Investment Review Board approval. CEO Rob Fyfe said there is no intention to make a takeover bid for Virgin Australia. [more - original PR]

Air New Zealand: "Our increased investment in Virgin Australia continues Air New Zealand’s strategy to develop scale and reach in this region. The trans-Tasman Alliance with Virgin Australia was the first step in this strategy, followed by our initial investment in January of this year. This increased investment demonstrates our continued belief in the strategy that Virgin Australia is pursuing and our confidence in the Virgin Australia management team to deliver this strategy," Rob Fyfe, CEO. Source: company statement, 26-Sep-2011.

Air New Zealand: "The trans-Tasman Alliance that we have with Virgin Australia is now well underway and delivering great results for customers and also for both airlines. Our combined share in the trans-Tasman market has grown significantly year on year. As we noted at the time of our original investment, our stake in Virgin Australia also provides us with an interest in the number two airline in Australia and, through this, access to opportunities in the growing Australian domestic market. Air New Zealand has no intention to enter the Australian domestic market in its own right. The recent weakness in Virgin Australia’s share price provided us with an opportunity to gain further exposure to Virgin Australia at an attractive price, reducing our average cost of entry from 44cps to approximately 40cps," Rob Fyfe, CEO. Source: company statement, 26-Sep-2011.