AIR FRANCE-KLM group, the world's largest airline by sales, agreed to buy Alitalia SpA in a bid valued at €747 million ($1.2 billion) as part of the Italian government's plan to save the unprofitable carrier from bankruptcy.
Air France-KLM will swap one of its shares for every 160 of Alitalia's, valuing the Italian airline at €139 millions, or 10 cents a share, Air France said. That's 81 per cent less than the closing price on March 14th.
Air France offered €608 million for the carrier's convertible bonds. Alitalia's board accepted the bid after a 12-hour meeting in Rome at the weekend. In buying Alitalia, Air France-KLM wins access to one of Europe's biggest passenger markets, while inheriting an airline that has not earned an operating profit in almost a decade and loses more than €1 million a day.
The agreement may face opposition from unions concerned about layoffs and needs the government's backing, which will change next month.
"In the short term the purchase may hurt profitability, but Alitalia will bring significant leverage with the opening of new hubs in Italy," said Alexandre Hezez of Paris-based Roche-Brune SAS, who helps manage €110 million.
Air France plans to sell €1 billion of new Alitalia shares to fund "the commercial relaunch" of the airline. The three-year business plan agreed to by Air France will scale back unprofitable routes, cut 1,600 workers, or almost 15 per cent of the Rome-based carrier's staff, and trim the size of its fleet in a bid to restore operating profit by 2009.
- (Bloomberg)
