Slinky09 From United Kingdom, joined Jun 2009, 123 posts, RR: 0 Reply 2, posted (4 months 2 days 2 hours ago) and read 3027 times:
There have been stories about Iberia dragging its feet in regard to the merger, and the management have said their current focus is on managing IB back to profitability too (while also commenting, probably reasonably, on the BA pension fund deficit as a reason for haggling over the ownership structure of the combined entity).
Maybe this move will make the merger happen sooner rather than later ... interesting WeeWW has just commented favourably on the new management:
OP3000 From United States, joined Jun 2009, 522 posts, RR: 2 Reply 5, posted (4 months 1 day 8 hours ago) and read 1782 times:
The placement of Sanchez-Lozano and to lesser degree the resignation of Conte reflect the control that Caja Madrid (one of the largest Spanish housing lenders) has over Iberia. Sanchez is one of Caja's top execs, and apparently has some previous merger experience as he worked on the sale of a couple of Spanish tobacco firms. Caja Madrid in turn is a semi-private company, controlled by the Madrid regional government, and due to the housing slump in Spain they are not doing well. Conte had clashed with Caja Madrid since the merger negotiations began, saying that while BA's Willie Walsh could negotiate without talking to his board, the Iberia CEO could not.
So it seems like this move is directed towards making the merger/sale of Iberia happen. I foresee IB getting 35-40% of the combined entity, but never the 45% they had asked for about 8 months ago at the bottom of the financial market crash when the pound was at its lowest. Now, the pound has rallied back some against the euro, Spain's economy has gone further downhill, and IB's shareholders seem to have a greater sense of urgency. And whereas IB's other potential marriage partners (AF and LH) seem to have their hands tied up with other mergers (SN, OS, and AZ), BA could have a series of other interesting options (albeit outside of Europe) such as QA, AA and even CX, all of whom are already partners and whom theyve flirted with for years.
CityofAthens From , joined Dec 1969, posts, RR: Reply 7, posted (4 months 1 day 4 hours ago) and read 1354 times:
Kelual, interesting post ... could you elaborate? The reason I started this post was precisely to get opinion on what Conte's resignation means for Iberia ...
Australis From Australia, joined Feb 2009, 83 posts, RR: 0 Reply 8, posted (4 months 1 day 4 hours ago) and read 1350 times:
Well, interesting news indeed.... probably more behind the scenes that what we can see for now..
Though, im guessing the new team would hopefully focus on getting the merger with BA finally across the line and perhaps focus on improving the onboard service and customer service to passengers across the route network?
R2rho From Germany, joined Feb 2007, 873 posts, RR: 1 Reply 9, posted (4 months 19 hours ago) and read 964 times:
Of course, "resignation for personal reasons" is press-release language for "Fernando Conte has been removed from his position by the main shareholder Caja Madrid, who has substituted him by one of its own executives."
Clearly, there is much more going on behind the scenes than we know.
What outcomes this has for the merger and IB's future is difficult to say. What can be said is that IB is now effectively controlled by Caja Madrid, so the question to ask is: what is Caja Madrid's position regarding the merger? Do they want to merge at all costs for the sake of merging, or do they want IB to have a strong position in the merged company? Antonio Vazquez has experience with British-Spanish mergers (he sold Spanish tobacco firm Altadis to Imperial Tobacco).
The only thing that we can say for sure is that the merger talks have been going on for a year now and no known progress has been made...
GatoVolador From Spain, joined Apr 2007, 423 posts, RR: 2 Reply 10, posted (4 months 15 hours ago) and read 851 times:
Now it's too late, but tomorrow I'll try to give my two cents about this subject. Overall, I take Kelual's point and my opinion is that most of you are going too far with your interpretations. Everybody is trying to see the "dark side" of the decision by linking it to the merger, but my guess is that everything is easier than it seems.
Summa767 From United Kingdom (England), joined Mar 2004, 1515 posts, RR: 7 Reply 12, posted (4 months 6 hours ago) and read 715 times:
Quoting GatoVolador (Reply 10): Everybody is trying to see the "dark side" of the decision by linking it to the merger, but my guess is that everything is easier than it seems.
Look forward to your interpretation of Conte's resignation, but the fact that it's so sudden (even though Conte says that it was all planned all along) does make it more likey that he was pushed.
Now, whether the move will get the merger with BA going, or otherwise toughen IB's demands or even seek alternatives, we will have to see.
OP3000 statement that IB might get as little as 35% of the holding in case that the merger does happen is too generous with BA, given its huge pension hole and debt. IB has cash, although it has started to deplete.
I do agree, though, that IB's prospects are deteriorating, whereas BA has probably already touched the bottom, and so my guess is that Caja Madrid does want to speed up the merger whilst they are in a relatively strong position.
GatoVolador From Spain, joined Apr 2007, 423 posts, RR: 2 Reply 13, posted (3 months 3 weeks 6 days 17 hours ago) and read 493 times:
Sorry for the delay guys but during the weekend I tried to send this message and I don't know what happened, but I was unable to do it.
My opinion regarding the substitution of Fernando Conte by Antonio Vázquez and Rafael Sánchez-Lozano is that no particular changes on the merger process will occur, since both Conte and Caja Madrid (whose representatives are now the Chairman and the CEO of the airline, respectively) have always been enthusiastic supporters of a BA-IB operation, despite all the wrong messages sent by the international press and analysts, who interpreted that Caja Madrid’s role was to guarantee that Iberia remained Spanish. Nothing to do. Let me just remember that it was Iberia who (very violently) pushed Willie Walsh to accept a merger after a two-days meeting of the Board of Iberia at Toledo, which ended up with Iberia purchasing a 10% of BA without Walsh’s consent. Two days later, Walsh and Conte announced the project to merge at the Castellana Intercontinental Hotel (a British chain, by the way…). So, first lesson learnt is that Iberia and Caja Madrid do want the merger go on.
It’s true that Caja Madrid considered that Conte was not piloting the merger well, because he was for a low-intensity merger from the perspective of Iberia, meaning that he preferred to merge than not to merge, even if in order to reach an agreement Iberia had had to lower its aspirations in the new holding. Caja Madrid said that they wanted to merge, but not at any price, meaning that if BA refused to recognise Iberia its weight, it was better to cancel or delay the creation of the new company. Moreover, Conte was an exception among the companies listed on the stock exchange since the Chairman was the CEO at the same time, implying that the same person was in charge to (internally) manage the company —this is was the CEO does— and (externally) represent the interests of the (core) shareholders —which is the role of the Chairman—. That’s why Caja Madrid supported that Iberia had to split both roles in order to have somebody (Sánchez-Lozano) busy with the “internal” problems (there is a lot to do to fight against the low business-cycle) and somebody else (Vázquez) representing the core shareholders from the strategic point of view (the long-run future of the company).
To sum up, Vázquez and Sánchez-Lozano will not speed nor slow the process up with respect to Conte, neither they will be more or less inclined to the merger, because all the them support it, but by splitting the functions of the CEO and the Chairman, the last one will be more focused on this kind of long-run strategic management that the CEO.
Anyway, the merger is not (in my opinion) the key reason to substitute Conte: this is just an excuse to “hide” the true reason which is only domestic, and which no international newspaper realized. Let me explain it in a very silly and basic way. The key aspect is that Miguel Blesa (the CEO of Caja Madrid) is about to loose his job after having almost completed the maximum term that the internal rules of Caja Madrid permit for a top manager. Instead of preparing a “transition”, Blesa decided not to leave his position, and to anticipate the process of election of the new CEO, in order to be elected once again as the CEO before reaching the limit to be elected one more time.
The General Shareholder’s Meeting (well, it’s an Assembly, but very similar to a GSM) was against Blesa’s re-election, and offered him to appoint him as the new Chairman of Iberia (and of the merged entity, since Caja Madrid will be the first shareholder of the new holding) if he abandoned his idea to be elected one more time as the CEO of the bank. He refused, as a way to block the intentions of the Assembly, he appointed Antonio Vázquez and Rafael Sánchez-Lozano as the new top executives of the airline. The excuse of the merger is perfect for cheating the journalists (as usual) without telling the true intentions of Blesa.
Also consider the following secondary explanations:
1) Caja Madrid participates as a core shareholder in many companies of very diverse sectors through its industrial portfolio “Cibeles” (www.cibelescajamadrid.es), which includes companies as NH Hoteles (hotels), Indra (technology), SOS Cuétara (food and agriculture), Mapfre (insurances), Altae Banco (bank for rich individuals in Spain), Global Via (management of infrastructures), City National Bank (bank in Florida), Su casita (housing lender in México), and many others. Cibeles has a clear policy with respect to the managers: they want to appoint they right-hand executives. Only some weeks ago, and after an extra purchase, Caja Madrid dismissed the managers of SOS Cuétara and appointed their own executives. It happened exactly the same in City National, where now the Chairman is from Madrid.
2) Keep in mind that Conte was appointed by a Board formed by BA+AA (10%), Caja Madrid (10%), BBVA (about 7,5%), Logista (about 7,5%), Ahorro Corporación (3%) and El Corte Inglés (3%). Now the Board has dramatically changed AA, BBVA, Logista, and Ahorro Corporación are gone and Caja Madrid controls almost up to a 25%. Conte was a candidate of consensus, but now the ownership is less diverse than before and Caja Madrid has the ability to “underline” the candidate they want. These candidates were Álvarez and Sánchez-Lozano, who previously were the representatives of Caja Madrid in the Board under Conte’s presidency.
3) It was about time to change the top management, because Conte was appointed six years before (which is a lot for a CEO!). As a matter of fact, the last Chairman (De Irala) and the previous CEO (Mullor) also lasted for six years. It is a constant the renew the management after this kind of cycles. (By the way, in our aviation forum in Spanish we discussed only some months ago how many time would Conte last, and we all agreed that not too much, even though my bet was until 2011, at the end of the current Master Plan).
4) Conte may have other plans, as Irala had when he left Iberia and then was hired by BBK (a basque “caja”) to become the new CEO (until some weeks ago, when he was substituted —again, 6 years before his appointment, so you see that this is a magic number— by one guy who worked at my law firm). Remember that 2009 is a very difficult year for the airline industry, and Conte may prefer leave Iberia before loose his reputation if the airline posts for the first time in 14 years a loss. This may sound stupid, but it’s not.
VV701 From United Kingdom, joined Aug 2005, 3792 posts, RR: 20 Reply 14, posted (3 months 3 weeks 6 days 17 hours ago) and read 469 times:
Both of these criticisms of OP3000's analysis may well be correct.
Quoting Kelual (Reply 6): OP3000 what a beautiful story, but sooo far away from reality...
Quoting GatoVolador (Reply 10): The story of OP3000 contains some incorrect data.
But if they are correct why:
1. Do they not identify where OP3000's well reasoned and interesting assessment is wrong?
2. Tell us what is (allegedly) correct?
Do you believe it is sooo far away from reality and incorrect for OP3000 to say:
Quoting OP3000 (Reply 5): The placement of Sanchez-Lozano and to lesser degree the resignation of Conte reflect the control that Caja Madrid (one of the largest Spanish housing lenders) has over Iberia.
Do you believe it is sooo far away from reality and incorrect for OP3000 to say:
Quoting OP3000 (Reply 5): Sanchez is one of Caja's top execs, and apparently has some previous merger experience as he worked on the sale of a couple of Spanish tobacco firms.
Of course I could go on. But I do not need to. I await your elaborations with interest.
GatoVolador From Spain, joined Apr 2007, 423 posts, RR: 2 Reply 15, posted (3 months 3 weeks 6 days 16 hours ago) and read 441 times:
Quoting OP3000 (Reply 5): The placement of Sanchez-Lozano and to lesser degree the resignation of Conte reflect the control that Caja Madrid (one of the largest Spanish housing lenders) has over Iberia.
Well, it sounds logical: Caja Madrid controls almost a 25% of the capital and normally the core owners appoint their own executives as managers of the companies they control.
By the way... Caja Madrid is a bank, not a "housing lender", strictly speaking. (... and one of the main products of a bank are mortgages). Caja Madrid is a mid-sized domestic bank, but its activity does not differ from other more international Spanish banks as Santander, BBVA or La Caixa.
Quoting OP3000 (Reply 5): Sanchez is one of Caja's top execs, and apparently has some previous merger experience as he worked on the sale of a couple of Spanish tobacco firms.
Tabacalera was privatised in 1997. Then it merged with (bought) France's Seita and they formed "Altadis". Altadis was sold years before to Imperial Tobacco.
Quoting OP3000 (Reply 5): Caja Madrid in turn is a semi-private company, controlled by the Madrid regional government, and due to the housing slump in Spain they are not doing well.
Caja Madrid is not a state-run company because the capital is 100% private (it's raised from the "impositores": the clients of the bank who diposit their savings there). However, the "cajas de ahorro" have a particular status: they are a mix between a limited company and a foundation. They operate as a limited company (as any other retailer bank) but they are a non-profit entity. Of course they maximize their profits, but these profits are not distributed among the shareholders through dividends. (Similarly, a foundation cannot give its patrimony back to the foundators). Instead, they have two options: they reinvest their profits in themselves or they spend it in projects that benefit the society: they grant scholarships for R&D projects, they support preservation of the environment projects, conservation of historical patrimony, they have museums, they finance cultural projects (cinema, etc.), they promote the integration of disabled persons, etc.
There are two phases: "ad-intra", the company works as a limited company to maximize the profits. "Ad-extra", once the profit is obtained, an Assembly decides how the profits are spent, as a foundation. This second phase is under the control of the regional government of Madrid, which is the tutor of Caja Madrid as a foundation. (... by the way, ANY foundation in Spain has a "tutor" for the public sector: normally a regional government.)
The management is "independent" and the trustees of the foundation (the Assembly) are appointed by some representative and quite plural institutions: the regional parliament (each party at its turn can chose its trustees according to the weight they have at the parliament), the most representative trade unions, the city councils of both the region of Madrid and other regions, the universities, the chambers of commerce, etc. etc., and even the clients have their representatives.
Saying that the "cajas" are under the control of a regional government is very mediatic, but not always true. In the case of Caja Madrid, the government is minoritary and as a matter of fact, the CEO of Caja Madrid is not supported by the regional government. Esperanza Aguirre (the regional prime minister) is against Blesa (the CEO) and even the socialists are against him, but he keeps managing the entity because he is backed by the unions, some cities, the clients, the chamber of commerce, etc.
By the way... Caja Madrid is not doing bad. It's true that with the housing bubble crash the bank does not fianances as many houses than before, but this is not the end of the world. In 2008, the net profits amounted +900 M€. Not bad. It's less than before, but the idea that "Caja Madrid wants to sell Iberia to raise cash" is false.
Quoting OP3000 (Reply 5): So it seems like this move is directed towards making the merger/sale of Iberia happen.
Iberia is not on sale. I feel that most of you perceive this merger à la Lufthansa. Nothing to do. Lufthansa set the conditions to buy Austrian Airlines, for example, but this is not the case of Iberia. Iberia does not want to leave the company in BA's hands, take the money and run away.
Their idea is that they need to grow in order to compete in the new scenario dominated by OpenSkies and two large airlines dominating the European market. It's not that Iberia needs BA to survive, but that Iberia wants to be a first-rank airline in the European industry, and this has to be achieved with their partners BA and AA.
Now it's late, but Iberia likes to say that they want to form a "mega-carrier" through the ATI with AA and the merger with BA. They don't want to be dissolved into BA, but create a new "mega-carrier" (a new player in the world industry formed by two co-ordinated airlines and their own hubs) and be part of it as the heart of the new entity. As a matter of fact, Caja Madrid wants to be the first shareholder of the holding and they are interested in keeping the operating headquarters (where the day-to-day is run) in Madrid, whereas London would concentrate the financial activity of the new holding (atracting capitals from all over the world).
Quoting OP3000 (Reply 5): I foresee IB getting 35-40% of the combined entity, but never the 45%
I disagee. IB is to get a 50% of the merged airline or something very close to it. Iberia does not want to be the junior partner, but they want to (jointly) manage the new mega-carrier and represent one half of it. Again: erase the AF-KLM or LH-Swiss structure. It's a joint-venture more than a sale and purchase agreement. Actually, it's not a S&P agreement at all.
Quoting OP3000 (Reply 5): IB's shareholders seem to have a greater sense of urgency
Again: no they don't. They don't want to sell and leave, but to stay and lead, instead. Caja Madrid wants to be the first shareholder. Iberia is already BA's first owner.
OP3000 From United States, joined Jun 2009, 522 posts, RR: 2 Reply 16, posted (3 months 3 weeks 6 days 15 hours ago) and read 406 times:
I found Gatovolador's clarifications quite interesting, in particular the inner workings and legal structures of Caja Madrid, plus the other assets that they control.
But I don't see much of an argument anywhere as to why you disagree that IB will get less than the 50% of the combined entity.
Quoting GatoVolador (Reply 15): They don't want to be dissolved into BA, but create a new "mega-carrier" (a new player in the world industry formed by two co-ordinated airlines and their own hubs) and be part of it as the heart of the new entity. As a matter of fact, Caja Madrid wants to be the first shareholder of the holding and they are interested in keeping the operating headquarters (where the day-to-day is run) in Madrid, whereas London would concentrate the financial activity of the new holding (attracting capitals from all over the world).
Its one thing what IB and Caja Madrid want, and another what they will get. Yes, they want a merger-of-equals, they want HQ's in Madrid, and they want 50%. But as we all know there's a difference between what you want and what you will get. You are right in that IB will not accept an "LH-style", but that will mean that no merger will happen rather than BA agreeing. I think its a foregone conclusion that BA will agree to both airlines having shared management control over the combined entity, but that's different to the financial terms of the transaction.
Quoting GatoVolador (Reply 15): I feel that most of you perceive this merger à la Lufthansa. Nothing to do. Lufthansa set the conditions to buy Austrian Airlines, for example, but this is not the case of Iberia. Iberia does not want to leave the company in BA's hands, take the money and run away.
I agree that is what they want.
Quoting GatoVolador (Reply 15): Quoting OP3000 (Reply 5):
IB's shareholders seem to have a greater sense of urgency
Again: no they don't. They don't want to sell and leave, but to stay and lead, instead. Caja Madrid wants to be the first shareholder. Iberia is already BA's first owner.
I meant a great sense of urgency than before (last year), not a greater sense of urgency than BA.
Quoting GatoVolador (Reply 15): It's not that Iberia needs BA to survive, but that Iberia wants to be a first-rank airline in the European industry, and this has to be achieved with their partners BA and AA.
Its clear to me and I think to most that IB does not need BA to survive. But in terms of a negotiation its important to understand that they don't have any other options besides BA for the merger-of-equals scenario they want. LH and AF would not give them the management control they want to retain.
VV701 From United Kingdom, joined Aug 2005, 3792 posts, RR: 20 Reply 17, posted (3 months 3 weeks 6 days 14 hours ago) and read 369 times:
Quoting GatoVolador (Reply 15): Now it's late, but Iberia likes to say that they want to form a "mega-carrier" through the ATI with AA and the merger with BA.
The IB-BA proposal on the table is neither to form a single "mega-carrier" or for a "merger" with BA.
Under the proposal that is under discussion a new holding company would be formed. IB and BA would continue to exist operationally very much as they do today but both would be owned by the new holding company.
The current shareholders of IB and BA would have their shares exchanged for shares in the new holding company. The proportion of the new company owned by current IB shareholders and the proportion owned by current BA shareholders is still under discussion. However Caja Madrid is likely to end up as the largest shareholder in the new company.
My understanding is - and I may well be wrong - is that most of the IB-BA discussion currently is about how much financial control the holding company will have over its two operating subsidiaies, IB and BA. It has been said that the BA negotiators are looking for tighter financial controls than the IB negotiators are happy to accept.
While there are new multi-national agreements like the EU-US Open Skies agreement, most international air travel is still made under the control of bilateral agreements. This applies to most if not all IB's services to Central and South America.
While these bilateral agreements are in force we are unlikely to see actual mergers between international airlines. This is because if IB were to form a mega-carrier by merging with BA and BA shareholders held the majority of the shares of the new mega-carrier, the IB services to Central and South America would have to operate unde the relevant bilateral agreement between the various American countries currently served by IB and the UK, not under their agreement with Spain.
However as more and more bilateral agreements are replaced by agreements negotiated by the EU, this will become progressively less and less of a problem.
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