Air France – KLM to take over Alitalia for €138 million

17 March 2008

Rome: Alitalia's board on Sunday approved a takeover offer put forth by Air France-KLM. The offer places a very low value on cash strapped Italian airline, and the takeover is seen as critical to Alitalia's survival.

Alitalia's press release on its website said that its board had unanimously decided to accept Air France-KLM's offer and ''execute the agreement.'' 

Air France-KLM itself was born out of the French airline taking over the Dutch KLM in May 2004. It now forms Europe's largest airline, employing 103,000 people with a a fleet of around 582 airliners flying to 240 destinations.

On Friday, Air France – KLM had unveiled its formal bid for Alitalia, saying that the offer would hinge on union support. Other preconditions to the deal include the government's commitment to giving up its 49.9 per cent stake in the airline as well, along with an 'elimination' of risks arising out of litigation from Milan airport operator SEA, which is asking for €1.25 billion in damages on account of Alitalia's decision to scale back operations at the Malpensa airport. SEA is 84.6-per cent owned by the City of Milan.

The issue will most definitely be highly politicised, given the governments' just-less-than-half holding in the airline, and the fact that one of the biggest litigant against the airline is also owned by the City of Milan. Moreover, it comes at a time when a new Italian government will come to office from elections on 13 and 14 April. Alitalia's unions CGIL and pilot's union Anpac have already attacked the takeover bid, calling it an unconditional surrender.

Air France-KLM's offer for Alitalia values a single share at €0.10, way below its quoted value of €0.53 as of Friday, which adds up to a discount of around 81 per cent on the record low price at Friday's close.