Singapore Airlines ups Virgin stake

Will we see a takeover?

a woman

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Following hot on the heels of the ACCC approving Virgin Australia Holdings (ASX: VAH) investment in Tiger Australia, Singapore Airlines has now doubled its stake in Virgin.

In a statement to the ASX yesterday, Virgin announced that Singapore had increased its shareholding to 19.9%, just two days after the airline had topped up its Virgin holdings to 10%. Singapore Airlines bought its new 9.9% stake from co-founder Richard Branson, and is now Virgin’s largest shareholder. Air New Zealand (ASX: AIZ) retains a 17.7% holding, after recently being diluted in an equity placement to Singapore, while Mr Branson still holds 12.4% of Virgin.

Note: If Singapore had taken a larger stake in Virgin, it would have breached the 20% takeover threshold, requiring it to make a takeover bid. Companies are allowed to acquire up to 3% every six months if they hold at least 19% of the target company.

Etihad Airways also has an 8.5% stake in Virgin, which means close to 50% of the airline is now controlled by three airlines. With Mr Branson showing he was willing to sell down his stake in Virgin, the chances of Singapore, Etihad or Air New Zealand taking the airline private appear high. Singapore Airlines appears the most likely given its competition with Qantas Airways (ASX: QAN) internationally, and the acquisition of Virgin would give it a larger standing domestically.

Singapore Airlines chief executive Goh Choon Phong said: “Our partnership with Virgin Australia has been going from strength to strength, offering a wide range of consumer benefits. Increasing our stake in Virgin Australia is another example of Singapore Airlines’ deep commitment to the important Australian market. It also demonstrates our support for the ongoing transformation of Virgin Australia, which has created a more competitive aviation market in Australia.”

Foolish takeaway

Virgin certainly has appeal for Singapore Airlines. As well as its stake in Virgin, Singapore also holds 33% of Tiger Singapore, which in turn holds 40% of Tiger Australia. Virgin has regulatory approval to acquire the other 60%. Of course the three airlines invested in Virgin may just be happy to ‘encourage’ it to adopt a strategy that helps them compete internationally.

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