Stobart Group Ltd (LON:STOB) shares soared on Friday after it teamed up with Virgin Atlantic and a New York-based hedge fund to take out cash-strapped Flybe Group PLC (LON:FLYB) in a cut-price £2.2mln deal.
Flybe, still one of the UK’s best-known airlines despite its troubles, put itself up for sale back in November after a slump in first-half profits.
The regional airline, like many of its peers, has been hit by higher fuel costs, Brexit uncertainty and intense competition in the sector.
Stobart, Virgin and Cyrus Capital have formed a joint venture called Connect Airways which will house the Flybe business as well as Stobart’s regional airline, Stobart Air, which is being acquired in a £40mln deal.
Cyrus invests in Stobart
Cyrus is the lead partner with a 40% stake, and the US hedge fund is also taking a 4.65% interest in Stobart after agreeing to invest £24.7mln.
Stobart and Virgin will each have a 30% interest in Connect, which will use the Virgin Atlantic brand to operate a network of regional flights provided by a combination of Flybe and Stobart Air.
The trio, through Connect Airways, is offering 1p a share to Flybe shareholders, some way below Thursday’s closing price of 16.4p. On top of this, they have also committed to ploughing up to £100mln of further funding into their new venture.
Flybe bosses have unanimously recommended the offer, with chief executive Christine Ourmières-Widener saying that being part of the enlarged group leaves it “better placed” to withstand some of the issues it is facing.
Stobart chief executive Warwick Brady added: “The board of Stobart Group believes that bringing Stobart Air together with Flybe and partnering with Virgin Atlantic and Cyrus Capital is the best way for us to play an active role in UK regional flying.
“The combined entity will be a powerful combination with sufficient scale to compete effectively in the UK and European airline markets. It will allow us to continue to work with Flybe and provides an excellent opportunity to continue to grow passenger numbers at London Southend Airport.”
More consolidation expected
“This [take-out] was always on the cards, or at least has been for the last two or more years,” said Markets.com analyst Neil Wilson.
“Flybe never made any money and was always saddled with too many planes. Combined with sector challenges like higher fuel prices and currency moves, it’s just proved too much for the company to manage on its own.
“We must expect further consolidation in European short-haul – several airlines have failed in the last couple of years but the process is not over.”
Shares were up 3.9% to 155.8p in early deals on Friday. They had reached as high as 164.5p earlier in the session.
--Adds Cyrus investment in Stobart, share price and analyst comment--