Air New Zealand (ANZ) lifted its stake in Virgin Australia (VA) from 14.99% to 19.99%, in a move ANZ CEO Rob Fyfe said will continue ANZ’s “strategy to develop scale and reach in this region.”
Fyfe confirmed ANZ has no intention of making a takeover bid for VA.
In a complex deal announced Monday, the increased interest is held through an equity derivative agreement with Deutsche Bank, which gives ANZ an increased economic interest of up to 5% in VA, subject to certain conditions. One condition is that the purchase does not cause VA to breach its foreign ownership cap of 49% specified in the Australian Air Navigation Act. Under the agreement, ANZ is guaranteed a minimum additional exposure of 3.5% and up to a maximum additional exposure of 5%.
The outlay for the minimum exposure of 3.5% will be A$23 million ($22.5 million), while the outlay for the maximum 5% will be A$32.8 million. ANZ said it intends to work with VA to bring its interest out of the derivative and into physical shares as soon as possible within the constraints of the foreign ownership cap. Prior to entering into the equity derivative arrangement, ANZ received Australian Foreign Investment Review Board approval to purchase up to 19.99% of VA.
Fyfe confirmed to the Australian airline’s chief executive John Borghetti in a telephone call Monday there is no intention to make a takeover bid for VA.
“Our increased investment in Virgin Australia continues Air New Zealand’s strategy to develop scale and reach in this region,” Fyfe said. “The transtasman 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,” Fyfe said.
“The transtasman 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 transtasman market has grown significantly year on year,” he said. “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,” said Fyfe, noting, “Air New Zealand has no intention to enter the Australian domestic market in its own right.”
VAH Price at posting:
41.3¢ Sentiment: Buy Disclosure: Held
