UPDATE 6-BA, Iberia $7 bln merger deal imminent

By Rhys Jones and Tracy Rucinski LONDON/MADRID, Nov 12 (Reuters) - A $7 billion merger between British Airways and Spain's Iberia looked imminent on Thursday as their boards held separate meetings to discuss a deal to create the world's third-largest airline by revenue. A deal, which seems set to give BA shareholders 55 percent of the new firm, would end the British flag carrier's more than two-year hunt for Iberia after a frustrated takeover attempt with private equity fund Texas Pacific Group in 2007. Formal merger talks between BA and Iberia began in July 2008 and aimed to help both airlines cope with the industry's biggest downturn in decades. "Further to recent market speculation, British Airways confirms that the British Airways and Iberia boards are holding separate meetings today, 12 November, to consider a potential transaction," BA said in a statement. "However, no decisions have been taken and, at this time, there can be no guarantee that a transaction will be forthcoming. A further announcement will be made in due course, if appropriate." Iberia, meanwhile, said its board was discussing a merger that would give the Spanish firm about 45 percent of the new company and BA about 55 percent. Spanish daily El Pais said on its website that Iberia's board had already approved the deal and that Iberia boss Antonio Vazquez would be chairman of the new company, which would have its headquarters in London. Analysts were expecting BA's chief executive, Willie Walsh, to be the CEO of the new company, with Vazquez as chairman. The two companies are likely to continue flying under their present brands, run from operational sub-headquarters in Madrid and London, mirroring the structure set up by Air France-KLM . The Franco-Dutch merger in 2004 created a holding company plus two operational units to preserve national identities and bilateral international landing rights. BA shares closed 7.5 percent higher at 206.8 pence, while Iberia shares ended up 11.8 percent at 2.22 euros. ((For a graphic showing the market capitalisation of both companies, please click on http://graphics.thomsonreuters.com/119/EZ_BAYIBR1109.gif)) MERGER BEST OPTION FOR DOWNTURN Analysts view a merger, which would create an airline with annual revenue of 13.5 billion pounds ($22.38 billion), as the best way forward for BA as it tries to emerge from the downturn. BA's Walsh wants to create an airline to rival Air France-KLM and Lufthansa, which has combined with Swiss International Airlines and Austrian Airlines in recent years. A BA-Iberia deal would need regulatory clearance from the European Commission, but this would likely go through, following the precedent set by the Air France-KLM merger. BA, which owns 13.5 percent of Iberia, has also applied to U.S. and European authorities for competition clearance, or antitrust immunity, which would allow it to share costs and revenue on transatlantic routes with Iberia and American Airlines. BA has a code-sharing agreement with the Spanish carrier under the One World alliance of airlines, which allows them to sell seats on each other's services. BA's Walsh said last week, after the airline's first-half results were announced, that he was "confident in the strength" of BA's case to win U.S.

Department of Transportation approval for a sales tie-up with American Airlines and Iberia. He also said a decision on BA's proposed merger with Iberia would likely come "in the very near future." PENSION SORE BA and Iberia began merger talks in July 2008 in response to slowing passenger demand. One of the main stumbling blocks in their long merger talks has been BA's pension deficit, which stood at around 3 billion pounds at the end of its first half and has been a key negotiating tool for Iberia. Spanish financial website Expansion said Iberia was reserving the right to veto the merger if BA's pension hole continues to widen, with the final terms of the deal to be announced next spring after a preliminary merger announcement expected tonight. Iberia is scheduled to report nine-month earnings on Friday. For a Factbox on how a combined British Airways and Iberia would look, click here For a Timeline on talks between the companies, click here ($1=.6033 Pound) ($1=.6668 Euro) (Additional reporting by Robert Hetz and Tim Hepher; editing by David Cowell, Simon Jessop and John Wallace) (([e-mail]; [phone]; Reuters Messaging: [e-mail])) Keywords: BA IBERIA/ (Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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