Air New Zealand to increase Virgin stake

ACCC says it won't oppose Air NZ's acquisition of a further 6% of Virgin

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 5, 2013 10:30 am AEST

Air New Zealand (ASX:AIZ) has received authorisation from the Australian Competition and Consumer Commission (ACCC) to increase its stake in Virgin Australia (ASX:VAH) by another 6%.

Air New Zealand currently holds 19.99% of Virgin, but wants to increase its stake to 25.99%. Today the ACCC said it would not oppose the proposed acquisition.

"The ACCC concluded that the proposed acquisition would not be likely to result in a substantial lessening of competition in any market as it would not provide Air New Zealand with the ability to control or materially influence Virgin or significantly affect Air New Zealand's incentives to compete with Virgin," ACCC Commissioner Jill Walker said.

Just two days ago, the ACCC authorised the two airlines to continue their trans-Tasman alliance for another five years – after granting rival Qantas Airways (ASX:QAN) and partner Emirates authorisation for their five-year trans-Tasman alliance.

Virgin has some notable majority shareholders on its register, with Etihad increasing its stake to 12.3% from 10.5% earlier this week. Etihad has permission to increase its stake to as much as 19.9%. Singapore Airlines already holds 19.9% of Virgin, while Sir Richard Branson's Virgin Group still retains a 13% holding.

For all three international airlines, Virgin is an important alliance partner, giving them access to Australia's domestic market, while giving Virgin customers plenty of options should they want to travel to Europe. Singapore offers flights through Asia, while Etihad has its base in Abu Dhabi, in the Middle East.

With three major airlines as backers, Virgin certainly has the firepower to take on Qantas domestically, while potentially offering more options for international travellers. Virgin is attempting to steal Qantas' dominant market share locally, while Qantas has said that it will take whatever steps necessary to protect its 65% market share.

Foolish takeaway

If Air New Zealand does increase its stake up to 25.99%, it will mean just four majority shareholders hold more than 70% of Virgin. That could move higher, and we could see Virgin left with very few minority shareholders.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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