Iberia investors seek bigger merger stake - source

MADRID, Sept 12 (Reuters) - Iberia's IBLA.MC Spanish board members have told the airline's executives to fight for a larger share of the airline which will be formed through a merger with British Airways, a source close to the board said on Friday.

The airlines will spend several months hammering out terms of the deal, chief among them what share of the new carrier existing shareholders will receive. Analysts initially expected a roughly two thirds to one third split in line with BA and Iberia’s market values.

“Yesterday, the eight Spanish Iberia board members asked management to begin talks aimed at establishing a share exchange (for the merger) which defends the interests of Spanish shareholders,” the source told Reuters.

The two board members representing BA BAY.L, which holds 13.5 percent of Iberia, did not attend the meeting held in Madrid on Thursday, the source added.

“The rest of the board unanimously backed the proposal,” the source said.

An Iberia spokesman declined to comment on the matter.

The combined carrier would be the world's third largest based on income of 16.5 billion euros ($23.1 billion) -- around 60 percent of that from BA. It will fly nearly 450 aircraft and would enable British Airways to better compete with larger rivals Air France-KLM AIRF.PA and Lufthansa AG LHAG.DE.

Iberia and BA said on July 29 they were in talks to merge via a share exchange, the division of which would be determined by their appointed investment banks.

Fortis Bank analysts said at the time that BA would own 66 percent of the new merged group and Iberia 34 percent, taking into account BA was worth twice Iberia at the time of the announcement.

But Fortis added that the share going to Iberia shareholders would increase based on the average price of Iberia shares over the six months leading up to the announcement or target prices established by analysts.

“It’s going to be a long negotiating process until the share exchange is fixed, but the board will work closely with management,” the source said.

Newspaper Expansion said on Friday core shareholder Caja Madrid, with 23 percent of Iberia, and three representatives on the 12-strong board were seeking more influence in the new merged group to ensure greater control of Madrid’s Barajas airport.

The airport accounts for over 10 percent of the Madrid region’s GDP. (Reporting by Robert Hetz; Writing by Judy MacInnes; Editing by David Holmes)