IAG mulls takeover of Norwegian?

[Icanseeclearly]

BBCs take on it

https://www.bbc.co.uk/news/business-47039303

in the report it states that shares dropped by 16% April last year share price 308 today 99...

https://www.londonstockexchange.com/...0NONOKEQS.html

not looking brilliant

[SetStandard]

BluSdUp,

Hey I hope you are right. I don’t run an airline, so I’ll leave the reasons how NAS has gotten into this position and what they can do about it going forward, to others. However I do know that a rights issue is realistically the last option available to a company to generate cash into the business. If the company can’t raise cash via profit generation or by borrowings then selling discounted shares to existing shareholders is the only way.

I would imagine that most shareholders would take up the rights issue if they are able. That would mean that John Fredriksen would have minimal exposure to the newly diluted shares. However, as you say, the issue is being underwritten by someone with deep pockets so hopefully NAS gets the cash it needs. NAS does however need to start getting cash into the business via profit generation - hopefully their turn around plan will assist this.

Interesting times, as you say.

[golfyankeesierra]

Mr Kjos explained that the airline was going to change its strategic focus from growth to making cost savings

curious to see where a lowcost is going to cut cost..

[EIFFS]

Originally Posted by golfyankeesierra

curious to see where a lowcost is going to cut cost..

MoL once said of Norwegian that “ only in Norway would Norwegian be considered to be low cost” there is one hell of a lot fat to cut for sure.

For the last 5 years everyone has been saying they need to stop expanding if they want to make money, meanwhile Kjos talks about critical mass

[ManaAdaSystem]

So they are not going to grow anymore?
How many aircraft still on order?
How is the operation in Argentina going? Supposed to be 60 aircraft there? How many at the moment?

[BluSdUp]

I heard the nr of aircraft today as 164.

[BluSdUp]

And stocks at 120KR down some 5 or 10% at closing today.

[ManaAdaSystem]

And according to Wikipedia, 122 aircraft orders, 30 A321 LR and 92 MAX.
No growth?

[Capt Ecureuil]

Will someone in the know tell how the cost savings envisaged affects crew such as bases, pay, conditions, job losses etc as the rumours out there don't sound good and yet some are in celebratory mood and getting out the champers and cigars.

[Da9441]

Originally Posted by ManaAdaSystem

And according to Wikipedia, 122 aircraft orders, 30 A321 LR and 92 MAX.
No growth?

I seem to recall something, suggesting that a fair amount of those will not make it into growth for Norwegian. Something on Flightglobal about it.

There are good parts of the business that are profitable so now world domination is off the cards there is hope it will pull itself back up.

As an outsider looking at it, it does seem rather haphazard how they are targeting growth, not clearly targeting a niche, just after everything. It's not like 20 years ago when most legacy carriers where caught unawares by new upstart low cost carriers, most are can compete very aggressively on long haul now and Norwegian can't rely on being cheaper as much, BA etc are much more competitive comparatively with Norwegian now than they were with Ryanair, EasyJet etc in the early days.

[racedo]

Originally Posted by SetStandard

BluSdUp, sorry, I don’t think you understand, that’s not what has happened. NAS is planning on issuing new shares to its existing share holders so they get a cash injection of 3billion Kr (£268m). John Fredriksen, Bjorn Kjos and Bjon Kise have all agreed to underwrite the new share issue, meaning that if any existing shareholders don’t want to purchase their new shares, then they will. Most shareholders would purchase their newly issued shares because otherwise their holding in the company becomes diluted.

No one has given anyone any money - shareholders are being asked to buy newly created shares so that the company has enough working capital going forward. I wish NAS all the best, I really do, however I’m glad I didn’t buy shares in them.

.

It is called a "Rights Issue" and in reality is pretty standard when you seek to raise money as it is cheaper than borrowing from a bank. If you own 10 out of 100 shares i.e. 10% and company makes a rights issue of 100 shares, then you have option to buy 10 so keeping holding at 10%. Not buying means someone else does and your holding will drop to 5% of the shareholding.

NAS shareholder list makes interesting reading as Norwegian Pension fund and other Norwegian institutions own a high %. It basically makes it takeover proof unless Bjorn agrees.

[ManaAdaSystem]

Norwegian Airlines pension fund, or the Norwegian state pension fund?

[SetStandard]

racedo understands it. However I would argue that it isn’t really a standard way to raise finance - it’s a last resort way to raise finance. Standard ways to raise finance are to generate cash into the business via profits or via borrowings from banks etc. I would suggest that both these convential ways are not an option for NAS for many reasons, hence the rights issue.

[Asturias56]

No - it's very common when you run into problems - the Banks ask a fortune in interest AND some lien on the assets, Govt aren't interested

So you dilute the current shareholders - they hate it but have little choice - if you own $ 100 of Norwegian stock before it's now worth only $ 90 (and the share price normally drops to reflect this) but you have little choice but if you don't agree then the you may own $ zero

[SetStandard]

Asturias56, exactly. Companies would only usually raise cash by way of a rights issue if they were unable to raise funds by other means - or as you say running into problems. The explination of a rights issue are pretty simple to understand, anyone with google could figure it out, the issue I see here is that there are no other options for NAS. This is their last option available to keep the business a going concern over the next few months. Hopefully, for the employees, shareholders and all other parties involved, it works.

[MCDU2]

At some point they are going to have to start generating cash (ie: sell bums on seats at a profit) in order to satisfy the debt covenants - or renegotiate them with the lenders. Robbing Peter to pay Paul and selling off their assets is a short term fudge.

[racedo]

Originally Posted by SetStandard

racedo understands it. However I would argue that it isn’t really a standard way to raise finance - it’s a last resort way to raise finance. Standard ways to raise finance are to generate cash into the business via profits or via borrowings from banks etc. I would suggest that both these convential ways are not an option for NAS for many reasons, hence the rights issue.

As they are going for growth then not really surprising they have a cash issue, it is pretty normal when companys are growing quickly. Borrowing from a bank and they knowing you need the cash means they set the terms and if need to borrow $250 million then pretty much guaranteed they will be looking for $10-15 million in fees plus a high interest rate.

Borrowing from the shareholders is FREE aside from the fees and underwriting costs.

As they have someone underwriting it, it means they have the money either way. Underwriter is someone basically stating they will buy any shares issued that have not been taken up by existing shareholders for a fee. Company will have to restructure to stop the cash bleed.

Norwegian capitalism is slightly different from the vulture capitalism that exists in UK/US so they will be there for at least another year. Norwegian Govt see it as a strategic investment so would fully expect them via other means to support the company.

[BluSdUp]

Folketrygds fondet ( Norwegian State Pension Fund ) has 6% of the stock in NAS.
Up to 132Nkr now, one hr before Oslo Børs closes.
Popular , no! Recovering due to potential Yes , me thinks!
Gone fishing!

[WHBM]

If you are going for growth you would have all your funding etc lined up before you start. That's professional finance.

I still can't see what the Rights Issue will achieve long term given it is only the amount of the loss last year, and will be absorbed by that. The comparisons with the last year of Dan-Air are uncanny (established carrier, big increase in schedules, rights issue in the bottom season, that investment going straight out of the door again to pay past debts, etc).

[SetStandard]

Originally Posted by racedo

As they are going for growth then not really surprising they have a cash issue, it is pretty normal when companys are growing quickly. Borrowing from a bank and they knowing you need the cash means they set the terms and if need to borrow $250 million then pretty much guaranteed they will be looking for $10-15 million in fees plus a high interest rate.

Borrowing from the shareholders is FREE aside from the fees and underwriting costs.

As they have someone underwriting it, it means they have the money either way. Underwriter is someone basically stating they will buy any shares issued that have not been taken up by existing shareholders for a fee. Company will have to restructure to stop the cash bleed.

Norwegian capitalism is slightly different from the vulture capitalism that exists in UK/US so they will be there for at least another year. Norwegian Govt see it as a strategic investment so would fully expect them via other means to support the company.

However they are not going for growth, they are trying to strengthen their balance sheet according to Bjorn Kjos. The type of capitalism doesn’t come into it. As I say, I wish no ill on the company or their employees, however trying to raise cash from a rights issue is the last resort to funding because they are unable to raise it elsewhere. In simple terms, they are not generating enough cash from their on going operations to cover what they need to cover and the banks won’t lend them any more money.

The underwriters would have judged that 3billion KR is what they require to survive the winter. Hopefully in summer, after their turn around plan has started, they will be able to generate cash from ongoing operations to cover them going forward.

Its reletivly simple however, no money is free. The underwriters/shareholders will want their investment back at some point plus a return on it. The only way the company is going to be able to provide that return is if it starts making a sizeable profit, soon. The underwriters obviously think that’s achievable and good on them too, I hope they are correct. However NAS is running out of options, it quickly needs to start to make a profit from flying people from A to B.