BA / Iberia Merger "Close", 55-45 Split Possible

February 2, 2009

The chairman of Spain's Caja Madrid, the biggest shareholder in Iberia with 23 percent, said an agreement on a merger between the airline and British Airways was close.

"I believe the operation is close, that's my impression," Miguel Blesa told journalists as he presented the unlisted bank's 2008 results on Monday.

Blesa is also deputy chairman of Iberia.

When asked what was blocking a merger agreement, Blesa said the share split, corporate governance questions and the location of the combined group's headquarters all needed to be resolved.

"The perception now I think is that the share exchange will not be 60-40," he said of the likely stakes to be held by BA and Iberia. "Iberia is now worth more. It will be closer to 55-45."

Caja Madrid said in a later statement that Blesa's estimates for the share exchange were his own and not the bank's.

British Airways chief executive Willie Walsh is expected in Madrid on Tuesday for talks with Iberia Chairman Fernando Conte and other Oneworld alliance bosses.

"The talks are ongoing, no timescales have been set," a BA spokeswoman said.

When the two announced last July they were discussing a merger, British Airways expected to secure around 65 percent of the combined group, but its shares have since dropped, worsened by a profit warning in January.

Together with the pound's recent slide against the euro, Iberia's market capitalization is now higher than BA's.

Iberia's shares closed up 1.66 percent at 1.84 euros after the announcement. BA lost 3.33 percent to 116 pence, although the airline also suffered due to massive travel disruption at Heathrow, its London hub.

BA canceled all short-haul flights and long-haul journeys before 1700 GMT (1200 EST) due to heavy snow. A spokesman said the weather also disrupted other airlines, and that disruption was likely to continue on Tuesday.