Icelandair Acquires Wow For $18 Million

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Icelandair today announced that it had reached an agreement to acquire Wow Air in all stock deal for $18 million (not taking the value of the Wow’s outstanding debt into account).

Wow Air

Stockholders need to approve this deal in an extraordinary meeting that will be held before the end of the year. The airline plans to continue use both Icelandair and Wow brands.

Here’s the announcement from Icelandair:

Icelandair Group has entered into a share purchase agreement to purchase all shares in the airline WOW air. The acquisition is subject to, approval by Icelandair Group‘s shareholders, the approval of the Icelandic competition authorities and a due diligence. As consideration for the shares, the shareholders of WOW air will, subject to conditions, receive a total of 272.341.867 shares or the equivalent of 5.4% of Icelandair Group‘s shares after the transaction. Thereof, 178.066.520 shares or 3.5% of the shares as consideration for the sold shares. The consideration can increase to 4.8% or decrease to 0.0% in accordance with certain conditions set forth in the share purchase agreement.  94.275.347 shares or 1.8% of the shares will be paid due to conversion of a subordinated loan into equity. All of sellers’ shares in Icelandair Group will be subject to restrictive covenants for 6 months and half of the shares will be subject to restrictive covenants to further six months.

The companies will continue to operate under separate brands. Their combined market share on the transatlantic market is around 3.8%. The acquisition creates opportunity for both companies to become even better prepared to provide international carriers with strong competition in the international airline market.

Bogi Nils Bogason, Interim President & CEO, Icelandair Group: „WOW air has in recent years built a strong brand and enjoyed great success in the company‘s markets to and from Iceland and across the Atlantic.. There are many opportunities for synergies with the two companies but they will continue to operate under their own brands and operating approvals. The tourism industry is one of the cornerstones of the Icelandic economy and it is important that flights to and from Iceland will remain frequent.“

Skúli Mogensen, CEO and founder of WOW air: „I am very proud of the success and development that we at WOW Air have enjoyed in the past few years and I am thankful for the response we have received since our very first flight. We have created a strong team that has reached remarkable success and has been a pioneer in low cost flights across the North-Atlantic. A new chapter now starts where WOW air gets an opportunity to grow and prosper with a strong backer like Icelandair Group that will strengthen the foundations of the company and strengthen its international competitiveness even further.“

In the upcoming days, Icelandair Group‘s will convene a shareholders‘ meeting where Icelandair Group‘s shareholders will cast their vote on the acquisition. A shareholders’ meeting shall be convened with at least three weeks‘ notice.

Stock quote

Icelandair Stock Quote

The price of the Icelandair stock jumped close to 40% today, although it is down for the year.

Conclusion

Both Icelandair and especially Wow haven’t been doing too well as of late. Icelandair just sold off its hotels and Wow had great trouble selling debt (read more here and here). Wow was basically too big to fail in Iceland due to number of tourists it brings to the country.

Let’s hope that this consolidation helps the airlines on the very competitive transatlantic market. Difficult to see the need for two overlapping brands in the long run, however.

Wow often teases at very low base fares that aren’t that low if you need to check a bag or do any other add ons. Great for those that can fly with a small carry on. Perhaps their pricing has been unsustainably low?

Interesting to see what will happen once and if the Icelandair shareholders approve this deal.

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