Posted on 03/17/2008 2:21:57 AM PDT by bruinbirdman
Alitalia, the stricken Italian national airline, has fallen into foreign hands after accepting a takeover offer from Air France-KLM worth €747m (£574m).
The sale marks the end of a tortuous process for the carrier that began at the end of 2006 when Romano Prodi, the former Italian prime minister, put it up for sale - declaring it was "out of control". Suitors including Aeroflot and Texas Pacific ran the rule over Alitalia but decided against bidding.
When Air France first announced "exploratory talks" 15 months ago, Alitalia was worth 95.4 cents a share. Yesterday's deal, struck after an 11-hour board meeting, saw the shares valued at just 10 cents against its closing price last Friday of 53 cents.
The offer will see Air France-KLM, the world's largest airline in terms of sales, swap one of its shares for every 160 Alitalia shares, valuing the Italian airline at just €139m. It will also take over Alitalia's debt, buying its convertible bonds for €608m.
The Franco-Dutch carrier has been chasing Alitalia for seven years, but the two sides only entered exclusive talks in December. However, its bid is "conditional on a number of elements", including a restructuring plan that will axe 1,600 jobs. The deal also has to be agreed by both the Italian government, which retains a 49pc stake, and the Italian unions.
The deal could also be torpedoed by SEA, the Italian airport operator, which is ready to take Air France to court if it carries out its plan to cut back on services from Milan's Malpensa hub.
Silvio Berlusconi, who is likely to win a general election next month, has already said he wants Alitalia to remain in Italian hands.
Meanwhile, there were few signs yesterday of union support for the deal. "The government has stripped us nude with this Air France deal. This is harmful for the workers, the infrastructure and the general interests of the country," said Raffaele Bonanni, the general secretary of the CISL, a federation of trade unions.
"Now we have to try to contain the damage, but the people who have made this mistake will pay the price," he threatened.
In a sop to Italian pride, Air France promised that Alitalia would retain its Italian flag, uniforms and cuisine. Rome will be turned into an "international hub to rival Paris or Amsterdam", while Malpensa will concentrate on business and low-cost passengers.
Air France, which is the world's biggest airline in terms of sales, is keen to gain access to Italy's lucrative domestic market. Alitalia carried 25m passengers in 2007, generating sales of €4.9 billion, but has not made an operating profit for a decade and, at the end of January, only had €282m in cash and was losing more than a million euros a day.
Other than it will now be the French taxpayer who foots the bill rather than the Italian taxpayer, I am not sure it will be much of an improvement. They are both state-run airlines.
Both state run airlines but Air France keeps making big profits.
That’s right, not that big after all. But Air France-KLM is still in better financial health than most US airlines.
Again, that’s not saying much and they may not be after buying Alitalia.
Deal now in limbo thanks to diabolical Italian airline unions, that may be a good thing for AF-KLM. Sometimes the best deals are the ones you don’t do.
I have a question for you, why is AF-KLM share price down 50% for the past 12 months? I assume increased fuel charges to be a major factor. But if I compare it to Southwest Airlines (down 15% for the same period), I wonder if there are not other reasons.
In any event, investing in airlines has not been a terribly good investment. Warren Buffett (who invested in Piedmont and then US Air to his regret) said if you add up all the profits and losses of all the airline company stocks since commercial airlines first started, the net profit is zero. There are better places to park your money.
Yep. Why do I get the feeling that the deal is being drive by the egos of the executives at Air France?
Apparently not lucrative enough to help Alitalia.
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