2nd UPDATE: Lufthansa Strikes BMI Deal, Ending Dispute
June 22 2009 - 10:54AM
Dow Jones News
German airline Deutsche Lufthansa AG (LHA.XE) Monday said it had
reached an agreement with Sir Michael Bishop, the co-founder of
British Midland Airways, or bmi, that will see the U.K.-based
airline bought in stages, ending a dispute that has simmered for
months.
The deal comes as the global airline industry faces one of its
sharpest ever downturns, with passenger numbers and cargo volumes
dropping as the economic slowdown bites. Most of the world's
airlines have seen profits drop sharply, or turn into losses.
Lufthansa Friday issed a profit warning for 2009, saying it's goal
now is to avert a full-year operating loss as weak demand for
passenger and freight air services persists and fuel prices are on
the rise again.
Lufthansa and Bishop have been in talks since last October, when
BMI's founder exercised a put option that allowed him to force
Lufthansa to buy his stake of 50% plus one share. The option, which
also involved Scandinavian carrier SAS AB (SAS.SK), the holder of
the remaining 20% stake in bmi, had been in place since 1999. Under
the deal, Lufthansa could also have exercised an option forcing the
sale of Bishop's stake.
The two sides have disagreed on the sale price and on the terms
of the option since Bishop exercised his right, but have now
reached an out-of-court settlement.
Lufthansa will pay Bishop and his holding company a total of
GBP223 million, or EUR263.8 million, considerably less than the
EUR400 million the German flag carrier put aside for the deal.
Lufthansa will cancel the put option by paying Bishop GBP175
million compensation and a "Lufthansa-related U.K. holding
company," LHBD Holding Ltd, will acquire Bishop's shares, held by
his BBW holding company, for around GBP48 million, Lufthansa
said.
Lufthansa will initially own a 35% stake in U.K.-based LHBD, but
wants to raise the stake to 100% once it has obtained the necessary
traffic rights for bmi. A Lufthansa spokeswoman refused to reveal
the identity of the other partners in LHBD for legal reasons, but
said they are U.K.-based. U.K. authorities could force bmi to give
up some of its traffic rights if it's no longer deemed a British
airline.
At 1339 GMT, Lufthansa's shares were down EUR0.09, or 1%, at
EUR8.71 in Frankfurt, outperforming a 1.8% fall in the blue-chip
DAX index.
The Lufthansa spokeswoman said the airline hasn't made a
decision on what it intends to do with its majority in bmi, adding
that all options are being examined. Virgin Atlantic, which is 51%
owned by Richard Branson's Virgin Group (VGN.YY) and 49% by
Singapore Airlines Limited (SINGY), has repeatedly expressed an
interest in bmi should it become free, hoping to match its
long-haul routes with bmi's mainly short-haul European network.
The Lufthansa spokeswoman also said the carrier is in constant
talks with bmi co-owner SAS, but added that it hasn't made a
decision about whether or not it intends to buy SAS's 20% stake in
the U.K. airline. SAS in February said it intends to sell its bmi
shares "as soon as possible".
If Lufthansa can turn around BMI, it could prove lucrative as
the British airline is the second-biggest user behind British
Airways PLC (BAY.LN) of London's Heathrow airport, holding over 11%
of its takeover and landing slots. However, the timing of the
transaction is a problem: "In recent years...bmi has experienced
increasing financial challenges. These have been strongly
exacerbated by the sharp rise in fuel prices in the past year and
the ongoing global economic crisis," Lufthansa said.
The deal also comes after Lufthansa made several other
acquisitions in recent months, which are coming under regulatory
scrutiny. The European Commission Monday cleared Lufthansa to buy
SN Airholding, the parent company of SN Brussels Airlines, with the
condition that the carrier give competitors access to four routes.
The commission is still investigating a separate deal where
Lufthansa is planning to buy Austrian Airlines AG (AUA.VI).
Company Web site: www.lufthansa-financials.com
-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503;
jan.hromadko@dowjones.com
(Adam Cohen in Brussels and Kirsten Bienk in Hamburg contributed
to this article.)