Air France-KLM bids for Alitalia
By Kevin Done in London and Guy Dinmore in Rome
Published: March 16 2008 16:14 | Last updated: March 16 2008 16:14
Air France-KLM made a conditional takeover bid for Alitalia at the weekend, which was given immediate backing at a meeting on Saturday of the board of the nearly bankrupt, state-dominated, Italian flag carrier.
The all-share bid values the Alitalia equity at only €139m or 10 cents a share based on an exchange of one Air France-KLM share for 160 Alitalia shares. The bid was pitched much lower than expected and was far below the Alitalia closing price on Friday at an all-time low of 54 cents a share.
Air France-KLM said that it would also acquire outstanding Alitalia convertible bonds at the current market price of 31 cents per bond for a total of €608m, and it committed itself to fully underwriting a €1bn injection of fresh equity into the struggling Italian airline.
At the end of January Alitalia had a net debt of €1.28bn and only €282m of cash and short-term financial credits.
Air France-KLM said the bid had been made conditional on it being backed by the Italian economy and finance ministry and crucially on it being given “formal approval” by Alitalia’s trade unions.
It must also be approved by the European competition authorities, a move which is expected by the end of June.
It said its restructuring plan could return Alitalia to operating profit as early as 2009.
Even though the current Italian government is likely to agree early this week to the sale, several obstacles to a takeover remain.
Initial reactions from the unions on Sunday were hostile ahead of a meeting with Air France-KLM on Tuesday. The French carrier has angered unions by refusing to involve them in consultations and by presenting the offer as take it or leave it.
Rafaele Bonanni, secretary general of Cisl, one of three main union federations, said “now the snow has melted, all the holes can be seen and we are expected to be happy at what has happened. It is very serious that the government is handing us naked to the negotations with Air France.
“It goes against the interests of the workers, the infrastructure and the general interest of ths country. Those who have committed this serious mistake will pay the consequences I am sure. But the main consequences will be paid by the country.”
He called the offer “tiny” and said it meant handing a major business to a national competitor in tourism.
Guglielmo Epifani, head of the CGIL federation, said the unions and the country had their backs to the wall. Luigi Angeletti, head of UIL federation, said the unions would not necessarily decide to drink the “poisoned soup”.
A big obstacle, which one government source described as the “sword of Damocles”, is a claim for damages of more than €1bn filed earlier this year against Alitalia by SEA, the company that manages Milan’s Malpensa airport. The source said Air France-KLM had asked the government to get rid of this claim but this was not possible.
Should the sale fall through, Alitalia could go bankrupt within two months, and risk dragging Malpensa with it, the source said.
The lower than expected offer price could serve to further politicise the controversial Alitalia sell-off ahead of the mid-April general elections.
The centre-left government, which says bankruptcy is the likely alternative to the Air France-KLM offer, is set to meet on Monday to consider the bid.
The sale can go ahead only with a green light from whoever wins the election, however, and Silvio Berlusconi, the centre-right opposition leader who is maintaining a comfortable lead in the polls, has already been openly critical of the idea of selling Alitalia to Air France.
The lower than expected offer price might also encourage a counter bid from Air One, the much smaller rival Italian carrier owned by the Toto construction group.
An industry source said Air One was considering a higher offer, but as Air France-KLM already owns two per cent of Alitalia and the Italian government holds 49.9 per cent, it is not clear how Air One could acquire a controlling stake without official backing.
If successful the acquisition will consolidate the position of Air France-KLM as the world’s biggest airline, measured by turnover.
The bid remains a high-risk move, however, by Jean-Cyril Spinetta, chairman and chief executive of Air France-KLM, given Alitalia’s long record of heavy losses and its reputation as the “sick man” of European aviation.
Its recent history has been dominated by union militancy, strikes, poor service and political interference, which have brought it to the edge of financial collapse despite several previous rescue attempts.
Mr Spinetta and Air France pioneered the consolidation of the European airline industry with the first takeover in 2004 of another flag carrier, KLM of the Netherlands. At the end of December it also took over VLM, the Belgian regional airline, defeating a competing bid from British Airways.
Its lead has been followed by Germany’s Lufthansa, which took over Swiss International Air Lines in 2005.
Copyright The Financial Times Limited 2008
By Kevin Done in London and Guy Dinmore in Rome
Published: March 16 2008 16:14 | Last updated: March 16 2008 16:14
Air France-KLM made a conditional takeover bid for Alitalia at the weekend, which was given immediate backing at a meeting on Saturday of the board of the nearly bankrupt, state-dominated, Italian flag carrier.
The all-share bid values the Alitalia equity at only €139m or 10 cents a share based on an exchange of one Air France-KLM share for 160 Alitalia shares. The bid was pitched much lower than expected and was far below the Alitalia closing price on Friday at an all-time low of 54 cents a share.
Air France-KLM said that it would also acquire outstanding Alitalia convertible bonds at the current market price of 31 cents per bond for a total of €608m, and it committed itself to fully underwriting a €1bn injection of fresh equity into the struggling Italian airline.
At the end of January Alitalia had a net debt of €1.28bn and only €282m of cash and short-term financial credits.
Air France-KLM said the bid had been made conditional on it being backed by the Italian economy and finance ministry and crucially on it being given “formal approval” by Alitalia’s trade unions.
It must also be approved by the European competition authorities, a move which is expected by the end of June.
It said its restructuring plan could return Alitalia to operating profit as early as 2009.
Even though the current Italian government is likely to agree early this week to the sale, several obstacles to a takeover remain.
Initial reactions from the unions on Sunday were hostile ahead of a meeting with Air France-KLM on Tuesday. The French carrier has angered unions by refusing to involve them in consultations and by presenting the offer as take it or leave it.
Rafaele Bonanni, secretary general of Cisl, one of three main union federations, said “now the snow has melted, all the holes can be seen and we are expected to be happy at what has happened. It is very serious that the government is handing us naked to the negotations with Air France.
“It goes against the interests of the workers, the infrastructure and the general interest of ths country. Those who have committed this serious mistake will pay the consequences I am sure. But the main consequences will be paid by the country.”
He called the offer “tiny” and said it meant handing a major business to a national competitor in tourism.
Guglielmo Epifani, head of the CGIL federation, said the unions and the country had their backs to the wall. Luigi Angeletti, head of UIL federation, said the unions would not necessarily decide to drink the “poisoned soup”.
A big obstacle, which one government source described as the “sword of Damocles”, is a claim for damages of more than €1bn filed earlier this year against Alitalia by SEA, the company that manages Milan’s Malpensa airport. The source said Air France-KLM had asked the government to get rid of this claim but this was not possible.
Should the sale fall through, Alitalia could go bankrupt within two months, and risk dragging Malpensa with it, the source said.
The lower than expected offer price could serve to further politicise the controversial Alitalia sell-off ahead of the mid-April general elections.
The centre-left government, which says bankruptcy is the likely alternative to the Air France-KLM offer, is set to meet on Monday to consider the bid.
The sale can go ahead only with a green light from whoever wins the election, however, and Silvio Berlusconi, the centre-right opposition leader who is maintaining a comfortable lead in the polls, has already been openly critical of the idea of selling Alitalia to Air France.
The lower than expected offer price might also encourage a counter bid from Air One, the much smaller rival Italian carrier owned by the Toto construction group.
An industry source said Air One was considering a higher offer, but as Air France-KLM already owns two per cent of Alitalia and the Italian government holds 49.9 per cent, it is not clear how Air One could acquire a controlling stake without official backing.
If successful the acquisition will consolidate the position of Air France-KLM as the world’s biggest airline, measured by turnover.
The bid remains a high-risk move, however, by Jean-Cyril Spinetta, chairman and chief executive of Air France-KLM, given Alitalia’s long record of heavy losses and its reputation as the “sick man” of European aviation.
Its recent history has been dominated by union militancy, strikes, poor service and political interference, which have brought it to the edge of financial collapse despite several previous rescue attempts.
Mr Spinetta and Air France pioneered the consolidation of the European airline industry with the first takeover in 2004 of another flag carrier, KLM of the Netherlands. At the end of December it also took over VLM, the Belgian regional airline, defeating a competing bid from British Airways.
Its lead has been followed by Germany’s Lufthansa, which took over Swiss International Air Lines in 2005.
Copyright The Financial Times Limited 2008
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