Germany’s Deutsche Lufthansa has agreed to take over Swiss International Air Lines in a deal worth up to $409 million, ending three years of independence for the loss-making Swiss carrier.
The long-rumored agreement on Tuesday marks the start of Europe’s biggest airline merger since Air France took over Dutch KLM last year to form the world’s largest airline group by revenues.
Under the terms of the agreement, Lufthansa will pay up to $346 million to the Swiss carrier’s major shareholders — the Swiss government and big companies — and about $59 million to individual investors whose shares are in free float.
Both supervisory boards had approved the planned deal, which would be signed by the groups’ top executives in Zurich later on Tuesday, they said.
The Swiss government — which holds 20 percent of the Swiss airline — earlier agreed to the takeover. The companies said they now had approval from shareholders representing just under 83 percent of the firm’s outstanding capital.
The airline’s other major shareholders include the canton (state) of Zurich, banks Credit Suisse and UBS, and car import and dealership group AMAG.
A raft of other Swiss companies have smaller stakes they received in return for chipping in to help get Swiss off the ground in 2002, when it was created from the ashes of collapsed carrier Swissair and regional airline Crossair.
Swiss shares had been suspended on Monday and Tuesday as negotiators put the finishing touches to the planned takeover. Lufthansa shares closed 0.5 percent higher at 11.13 euros.
Free float buy-out
Under the plan, Lufthansa will offer to buy out the roughly 14 percent of Swiss shares that are owned by small investors for a total of some 45 million euros.
The larger shareholders, which include Novartis, Roche and Nestle, will receive an outperformance option that offers them up to $346 million based on the relative performance of Lufthansa shares.
“The aim is a full takeover of Swiss,” the companies said in a statement.
However, the takeover will be complicated by rules over foreign landing rights.
Swiss shares will be put into a Swiss-based holding company called AirTrust, of which Lufthansa will buy 11 percent in a first step. Once it has approval from competition authorities it will increase its stake to 49 percent.
Following agreement on air traffic rights, Lufthansa will take over 100 percent of the trust company and therefore have full control of Swiss, which it expects by 2006 or 2007.
Lufthansa already wants to integrate Swiss routes into its 2005/06 winter timetable, and said it will maintain Zurich airport as an international hub.
Fresh capital
The Swiss government said Swiss will about $500 million in fresh capital over the coming years just to replace obsolete assets, adding that the only option to maintain Swiss as a viable concern and save thousands of jobs was to team up with a larger airline.
“Going it alone would have meant that Swiss slowly bleeds to death,” Swiss Finance Minister Hans-Rudolf Merz told a news conference in the Swiss capital, Berne. “The government cannot and will not give additional public funds to Swiss.”
But the German carrier insisted it had no plans to inject capital into Swiss.
“We will not increase Swiss’s capital, nor do we see any need to,” said a Lufthansa spokeswoman, adding that Swiss had already made large steps towards restructuring.
Recent opinion polls in Switzerland showed that the majority of Swiss people and parliamentarians back Lufthansa’s plan, despite some misgivings in the popular press about selling out the national flag carrier to their northern neighbors.
Air France and KLM also used a holding company structure to allow them to merge yet maintain separate operations and brands and to protect their respective foreign landing rights.
Swiss has slashed thousands of jobs and culled its fleet and route network, but has said that more job cuts will be needed if it wants to become profitable.
