Flybe's biggest shareholder launched a stunning assault on its directors, accusing them of violating their obligations to investors, and threatened to challenge the price cut by one of the UK's best-known airlines.
Sky News has learned that Hosking Partners, a prominent London-based asset manager holding nearly 19% of Flybe, has mandated lawyers to review their options The company intended to sell to a consortium led by Virgin Atlantic Airways,
These options could include an attempt to obtain an injunction prohibiting the closing of the deal. Hosking Partners has warned Flybe's bosses this week.
1p-a-Share's first deal announced eight days ago saw a significant discount on the airline's prevailing share price, underscoring the industry's profound financial challenges.
In a letter to the directors of Flybe, the details of which were forwarded to Sky News, Hosking Partners expressed its concern that they had developed a false market for the company's stock by not informing the city of its financial position in a timely manner.
The fund manager, a longtime Flybe shareholder, has copied his letter to the City Watchdogs, including the Takeover Panel, which conducts the M & A, and the Financial Conduct Authority.
Hosking Partners is said to have expressed doubts as to whether the £ 2.2 million offer reflected Flybe's intrinsic value, claiming that the execution of the proposed sale prevented a competing bid from appearing at a higher price.
Flybe's fate took another turn this week when he said that the sale to Connect Airways - a consortium of Virgin Atlantic, Stobart Group and Cyrus Capital Partners, a mutual fund linked to the other two parties - would be restructured.
Instead of merely making a traditional offer for the shares, Flybe's trading assets would be sold to Connect Airways for GBP 2.8 million next month, leaving the holding company as an outer shell for which the consortium would continue to pay a nominal amount.
Flybe said it had become necessary due to its urgent need for liquidity - a claim contested by Hosking Partners for cash on hand and the ability to raise funds from the sale of assets such as take-off and landing fees at London Gatwick Airport has been.
In a statement to the market on Tuesday, Flybe said he had no alternative but to accept the changes, as unspecified conditions linked to a bridging loan were not met.
Hosking and other shareholders are furious with the restructuring of the acquisition, as Flybe's conversion from a premium to a standard listing in the London market meant that the investor's approval was required only for the holding company's offering and not for the sale of the assets the airline.
The fund manager informed Flybe Directors that other parties were still interested in taking over the airline, but could not make an offer.
At the offer price of 1p-a-share, the stake of Hosking Partners is around £ 400,000.
If it escalates, this could lead to a significant reputation risk for Flybe's board of directors, chaired by Simon Laffin, a city grandi who serves as director of companies such as Mitchells & Butlers, Northern Rock, and Safeway.
The anger of investors was exacerbated by the fact that Stobart had made a takeover approach for Flybe at the beginning of last year, which claims to have a value of about 40 percent per share.
This was rejected by the board of Flybe.
In a further development Sky News was announced last week Andrew Stinkart's estranged former CEO, Stobart, had himself acquired more than 10% of Flybe.
Until recently, it appeared that Virgin Atlantic and Stobart were submitting competing offers to the regional airline before it turned out they had joined as part of the same consortium.
Hosking is said to have raised concerns about the process by which they were allowed to form an alliance, although a source close to Flybe said it did not violate any obligations.
The investor is also said to have highlighted the increase in the Stobart Group's stock price after confirming the 1p-a share offer as evidence of a "transfer of value" from Flybe to one of its acquirers, according to a source in the city.
According to their plans, Stobart Air will be merged into Connect, renaming all Flybe services under the name Virgin Atlantic.
Flybe's Chief Executive and Chief Financial Officer will be transferred to the bidding consortium in accordance with documents published by the Company.
The letter from Hosking Partners asks about any incentive payments incurred by either of them through the acquisition of the consortium.
In a statement, a Flybe spokesman said: "Flybe's board has been faced with a very difficult decision due to the current difficult liquidity situation of Flybe and the expectation that this pressure will continue.
"The acquisition of the revamped facility, as announced on January 15, by the consortium provides assurance that the business must continue to trade, safeguarding the interests of its stakeholders, customers, employees, partners and pensioners.
"Flybe will respond directly to shareholder letters."
Flybe launched a formal sales process last fall that blamed a toxic cocktail of currency fluctuations, rising fuel costs, and Brexit-related uncertainty.
Although financially small, it remains one of the UK's best-known carriers, transporting thousands of passengers between largely British airports and European airports.
A source close to the company pointed out that the results of the launch of the sale process had warned that if the credit card partners chose to seek much higher cash collateral and the group did not have sufficient access to Having additional liquidity, this would give rise to significant uncertainty that could raise significant doubts about the Group's ability to continue as a going concern. "
The Takeover Committee declined to comment, although a related source was confident that the supervision of the bid had been handled in accordance with its policy of acting in the interests of investors.
For Virgin Atlantic, which is still owned by Sir Richard Branson's Virgin Group, control of Flybe's regional network will make a valuable contribution to its long-haul flights to international destinations.
The return to the UK domestic aviation market will be four years after the announcement of the closure of Little Red, the earlier attempt to earn money from a known difficult sector.
Rising oil prices and the weakening of the British pound have put severe pressure on airlines, with price war in the industry fueling financial pressure.
A spokesman for Hosking Partners declined to comment on the contents of his letter, but said this weekend that investors "have a right to transparency about what has drastically reduced the value of Flybe".
"The auction conducted through the formal sales process has clearly not resulted in a favorable outcome for all stakeholders, and it appears that the outcome has locked out any other bidder that may provide a better solution for all of Flybe's stakeholders."
The source of Flybe said that the shareholders would have received nothing if the company had become insolvent.
"A transfer of funds protects other stakeholders, such as creditors, employees and retirement plans," added the insider.