Simon Laffin has seen a fair few takeover approaches in his time. The chairman of short-haul regional airline Flybe discusses the spectrum of takeovers in his blog “Notes from a non-executive director”.
According to Laffin, who was finance chief at Safeway before it was swallowed by Morrisons in 2004, they range from the knockout, to the “interesting but not enough”, to the spurious and the insulting.
Stobart Group’s takeover approach for Flybe in February evidently fell somewhere between the insulting and the spurious. Stobart bosses walked away empty-handed last month with Laffin’s words ringing in their ears: “If you don’t think the offer is really genuine, don’t feel that you have to engage.”
Was Laffin right to reject the approach? It’s hard to know when so little was revealed about Stobart’s intentions, but Flybe could do with a saviour. The airline, which links European regional airports with a fleet of small planes, has struggled to make money ever since its stock market float in 2010. Its latest annual results, due in the summer, are expected to show losses of £20m.
Shares in Flybe, which was floated at 295p a share by Bank of America Merrill Lynch, have headed south since then. In 2014, it raised £156m through a rights issue to fund its “rebirth” — priced at 110p a share. The rebirth has yet to arrive. It ended last week at 37.4p a share, valuing the company at £81m.
How’s that for delivering shareholder value? Flybe is caught between a rock and a hard place. It is deeply vulnerable to swings in the UK economy. Budget carriers continue growing market share. The oil price slump hammered flights to Aberdeen, and bigger rivals responded aggressively to new routes. Sterling’s depreciation has increased its fuel bill. Blizzards in February and March wiped £4m from its earnings.
Chief executive Christine Ourmieres-Widener has come up with a plan to set Flybe on a stable course — cutting its fleet of planes to 74 by next March, and raising revenues from passengers. Fewer planes and more passengers has increased its load factor — a measure how full its planes are — from 66.7% a year ago to 73.5%.
As IAG’s courtship of Norwegian Air shows, there is much more consolidation to come among airlines. Stobart, which has fingers in everything from woodchips to turboprops, was the obvious deal, but it’s off the table for a few months thanks to Laffin’s rejection. Until then, expect more slow, painful progress. Avoid.
