International Airlines Group (IAG), the British Airways and Iberia parent, will make a cash tender offer for the outstanding share in low-cost carrier Vueling in the first quarter of next year.
It values the Barcelona-based company at €7 ($9) a share or a total of €113.3 million.
An application for authorisation of the offer, along with the prospectus and other legal documents, will be submitted within the next month to Spain's market regulator, the Comisión Nacional del Mercardo de Valores, and subject to its approval, the offer will be launched to Vueling's shareholders in the first quarter of 2013.
If accepted, the deal is expected to complete in the second quarter of next year. The transaction is not subject to regulatory approval by the European Commission, says IAG, although does not provide further details.
The group has created Veloz Holdco SLU to undertake transaction and will launch the offer exclusively on the Spanish stock market. This means IAG's subsidiary Iberia will retain its 45.85% shareholding in Vueling with IAG seeking to acquire the remaining 54.15%.
IAG says it will fund the deal through internal resources.
"With its leading position in Barcelona, European growth strategy and low-cost base, Vueling has much to offer IAG. It has significantly increased capacity while remaining profitable, despite the Spanish economic slowdown, and already has extensive commercial arrangements with Iberia," says IAG chief executive Willie Walsh.
"This would be good news for Vueling as there are many advantages for the airline in this deal. It will benefit from the financial strength of a larger airline group, making it better able to compete with other airlines and invest in new customer products and services. The airline will also be able to generate some cost and revenue synergies as part of IAG mainly through joint financing and procurement."
Vueling will be managed as a separate operating company with its chief executive reporting directly to IAG's chief executive.
At 30 September 2012, Vueling's total assets amounted €805 million. It operates 57 Airbus A320-family aircraft and recently unveiled major expansion plans for next summer which will see it add 28 new destinations from its Barcelona El Prat base.