NEWS ANALYSIS: Bjørn Kjos, who has remained firmly in command of Norwegian Air, has suddenly found himself facing a potentially lucrative offer for the airline he founded from the owner of British Airways. As Norwegian’s shares continued to soar heading into the weekend, many think a takeover could also cure Norwegian’s chronic operating ailments and make it more professional, but fares may rise as well.
Kjos landed back in Oslo on Friday to lead an extraordinary shareholders’ meeting, called to decide whether to raise NOK 1.5 billion in new capital for the debt-laden airline through a new share issue. The background for the meeting, though, took an even more extraordinary twist on Thursday, when International Airlines Group (IAG) confirmed it had acquired a 4.6 percent stake in the airline and was evaluating a takeover offer.
That’s put the airline into play, with Kjos as major shareholder standing to profit from it. After skyrocketing 47 percent to close at NOK 264 on Thursday, when International Airlines Group (IAG) Norwegian’s shares were up another 7 percent by midday on Friday, to NOK 282 even before noontime. They fell back later in the afternoon, but the market clearly thinks Norwegian is worth more than it had been trading for, and gambling on even higher values.
Analysts think Norwegian Air could attract as much as NOK 500 per share. It once traded as high as NOK 360, but heavy debt tied to its intercontinental expansion, labour challenges and a high level of passenger complaints over delays and cancellations have taken a toll in recent years.
Kjos: ‘No desire to sell’
Kjos told reporters on Friday that “I don’t have any desire to sell at all.” When asked whether he was flattered by IAG’s interest in his airline, Kjos told Norwegian Broadcasting (NRK) that “it’s nice someone is buying shares.” He said he was in New York when IAG made its surprise announcement of its significant new stake in Norwegian: “I think it’s fun that one of the most well-operated and good (airline) companies is evaluating a possible bid.”
And then he noted that “‘for the right price, everything is for sale,’ as the saying goes. But the share price now is much too low in connection with the underlying values.” At this point, at least, Kjos said he had “never” thought about selling his shares. Nor, he told the Financial Times, has he evaluated whether to enter into talks with IAG. He said Norwegian Air would now probably engage financial advisers to help it deal with a potential acquisition offer.
IAG’s interest called ‘serious’
“The question is, what is Norwegian worth?” Jan Petter Sissener, a veteran broker and investor in Oslo, mused to newspaper Dagens Næringsliv (DN) on Friday. “Our opinion is that the company isn’t worth more than its total share price, but for an industry player (like IAG), Norwegian can have an entirely different value.”
Sissener, who had joined others in basically betting (through so-called short trades) that Norwegian’s shares would fall but then changed his mind in March, said he thinks IAG will launch a takeover bid: “IAG is serious when they already have bought 4.61 percent of the airline.”
Others agree, and cite positive synergy effects given IAG’s ownership of not just British Airways but also Iberia and Vueling in Spain, which is major market for Norwegian and the site of one of its bases outside Norway. IAG has also invested in the low-fare long-haul airline Level, flying in a market where Nowegian is already a leader. “Consolidation could give meaning (to a takeover),” Jo Erlend Korsvold, an analyst at SEB who has followed Norwegian closely, told newspaper Aftenposten. He noted that Norwegian Air has also started flying routes where British Airways had earlier monopolies, like London to Buenos Aires and Austin, Texas.
Tor W Andreassen, a professor at Bergen-based business school NHH (Norges Handelshøyskole), thinks IAG’s interest in Norwegian is exciting, and that a takeover by IAG can make the airline more professional.
“Norwegian is good at innovation, and that’s a clear strength in comparison with SAS and Widerøe (a regional carrier in Norway),” Andreassen told Aftenposten. “But Norwegian has an operating problem when it comes to regularity, and that irritates folks.” He claims the chronic irregularity that leaves passengers stranded far too often “has to do with (a lack of) professionalism. A new player (like IAG) that can point to entirely different results within regularity can come in and exert leadership that knows how to handle problems.”
Fares may rise
With a new owner, the professor added, Norwegian can get its regularity in order and “maintain its strong position on the innovation side.” That can also allow a new owner to raise fares, Andreassen noted. “They earn good money in the cabin,” he said, “but they could, in my opinion, boost customers’ willingness to pay higher fares” if they can prove better reliability.
Sissener also thinks ticket prices could rise after a takeover that could reduce compeition. So does Hogne Tyssøy, a former owner of Norwegian who think that if a takeover occurs, “we must prepare for higher fares.” It will depend, he told Norwegian Broadcasting (NRK), on how much a buyer pays for Norwegian shares “and on what priorities a new owner will have.”
It’s ultimately all up to Norwegian’s current major owner and chief executive, Bjørn Kjos. He stands to log huge gains on a sale, though, witih DN commentator Thor Christian Jensen writing that IAG’s interest puts Kjos “in a fantastic situation.” Most all analysts and commentators think he “must be rubbing his hands together,” as Korsvold said. “I don’t know what his threshold is for selling, but he most recently paid NOK 220 because he thought the share was underpriced. That can indicate he thinks the company is worth much more than that.”
No one knew on Friday what Kjos’ “magic number is,” and given his family’s roughly 25 percent stake in the firm through the HBK Invest company set up with co-founder and old friend Bjørn Kise, that will determine whether there will be a deal. While Kjos (a pilot himself who once flew fighter jets ) is Norwegian Air’s CEO, Kise is its board chairman.
Egil Stenshagen, another old friend and fellow investor in Norwegian Air, told newspaper DN that “we have to see what they (IAG) come up with in the form of an offer.” Stenhagen, a Norwegian billionaire and former rallycross champion who made his fortune importing BMWs, Land Rovers and Volvos to Norway, owns more than 600,000 shares in Norwegian and is one of the airline’s largest private shareholders.
Stenshagen insisted he has faith “that Nowegian can also manage alone, we’re not selling for now.” He said he and his family became shareholders in the airline “because it has an exciting business model, has expanded greatly, was a low-fare company aiming at the tourist market.” He said he “knows that Bjørn Kjos is very preoccupied with succeeding with Norwegian. He has most of his fortune in the company. I have absolute faith in him as as the chief.”
At the same time, Stenshagen added, “you can never ignore a good offer.” The ball seemed to be in IAG’s court, with a consensus among those reacting to its announcement believing IAG would make an offer that can fly.
“Norwegian is a nice competitor to get rid of,” Preben Rasch-Olsen, an analyst at Carnegie Investment Bank, told NRK. Sissener, meanwhile, noted that Kjos “is over 70 and will have to step down at some point.” Selling to British Airways would make for a “fantastic exit,” Sissener suggested, with billions of kroner in his and other investors’ pockets.