The press releases for today’s big announcement today of the sale of British Midland Airways to International Consolidated Airlines Group (IAG)
Following the announcement on November 4, 2011, Deutsche Lufthansa AG (Lufthansa) and International Airlines Group (IAG) have signed a binding agreement for the sale of British Midland Limited (bmi) to IAG. The price is GBP 172.5 million (approx. EUR 207 million) in cash for bmi. The price is subject to certain reductions. Both parties aim for a closing of the transaction by the end of the first quarter 2012.
After signing the agreement, Christoph Franz, CEO and Chairman of the Executive Board of Deutsche Lufthansa AG, stated, “bmi’s employees and management team have shown great motivation and unfailing commitment in dealing with the financial challenges of the past years. For this I owe them my thanks and appreciation. It was therefore especially important for us to find the solution that best provides the company and its employees with sustainable prospects for the future. This has been achieved through the sale of bmi to IAG. And as part of Lufthansa’s strategic development the sale means that our customers, shareholders and employees will benefit from a sharpened corporate profile and a stronger financial position of the Group. Both of these are necessary elements to enable sustainable, profitable growth.”
Transaction highlights:
- Sale of bmi for a gross purchase price of GBP 172.5 million (approx. EUR 207 million), subject to certain reductions
- Net of total potential reductions, the net purchase price expected to be clearly negative; however, the transaction is expected to have amortized for Lufthansa after around one year
- As part of the agreement, a British holding company of Lufthansa, is to take on bmi’s defined benefit pension scheme
- Deal remains subject in particular to competition clearance
- bmi will be accounted for as “asset held for sale / discontinued operations” for Financial Year 2011
- Closing of the transaction is aimed for the first quarter of 2012
- Transaction offers sustainable future prospects for bmi
- Lufthansa aligns airline portfolio to strategic fit and benefits from stronger earnings position
Meanwhile over at IAG http://www.iairgroup.com/phoenix.zhtml?c=240949&p=irol-rnsArticle_Print&ID=1642163&highlight=
BINDING AGREEMENT FOR BMI PURCHASE
Following the announcement on November 4, 2011, International Airlines Group (IAG) and Deutsche Lufthansa AG (Lufthansa) have today reached a binding agreement for IAG to acquire British Midland Limited (bmi). The cost is £172.5 million in cash though the price is subject to significant reductions. bmi consists of three distinct business units – bmi mainline, bmi regional and bmibaby.
Transaction highlights:
- Acquisition of bmi for £172.5million in cash
- IAG’s Heathrow slot portfolio to increase by up to 56 additional daily slot pairs
- Lufthansa to take on bmi’s defined benefit pension scheme
- Lufthansa has the option to sell bmi regional and bmibaby before completion
- Significant price reduction if Lufthansa does not opt to sell bmibaby before completion
- Deal subject to competition clearance
- Earnings per share (EPS) accretive by 2014 at the latest
- 2015 operating profit target of €1.5 billion to increase by more than €100 million with consequent increase in EPS
- Underpins goal of 12 per cent return on capital employed by 2015
- Restructuring costs spread over three years and significantly lower in total than bmi’s current annual losses
Willie Walsh, IAG chief executive, said: “Buying bmi’s mainline business gives IAG a unique opportunity to grow at Heathrow, one of our key hub airports. Using the slot portfolio more efficiently provides the option to launch new longhaul routes to key trading nations while supporting our broad domestic and shorthaul network.
“This deal is good news for the UK as we will maintain a comprehensive domestic schedule including Belfast. Our plans to expand our longhaul network would guarantee growth by making Britain better able to compete on a global scale. It will also help maximise Heathrow’s position as a world class hub airport.
“Customers will benefit from access to new destinations, more convenient schedules, enhanced frequent flyer benefits and greater investment than had been possible for loss-making bmi.
“Given the scale of bmi’s losses, there is an urgent need to restructure the business. Unfortunately, this will mean some job losses but we will secure a significant number of high quality jobs here in the UK and create similar new jobs in the future. IAG’s purchase of bmi will protect more British jobs than if the airline had been closed and had its Heathrow slots sold off. There will be restructuring costs spread over three years but these will be significantly lower in total than bmi’s current annual losses.
“bmi regional and bmibaby are not part of our plans and Lufthansa has the option to sell them before completion”.
Financing
IAG intends to finance the purchase from its own funds. £60 million of the purchase price will be paid in four instalments to Lufthansa pre-completion. This amount will be secured by Heathrow slots.
Pensions
Lufthansa has agreed to take on bmi’s defined benefit pension scheme.
Timetable and conditions
It is hoped that the transaction will be completed during Q1 2012 subject to regulatory clearance from the European Commission and other bodies. There is a termination fee of £10 million which is only payable by IAG if phase 1 EU regulatory approval is not achieved by March 31, 2012 and either party elects to terminate the sales purchase agreement.
About bmi
bmi mainline operates Airbus aircraft to destinations in the domestic UK market, Europe, CIS states, Middle East and Africa from London Heathrow. bmi regional operates an Embraer fleet and offers shorthaul flights within the UK and Europe from 7 regional airports. bmibaby operates Boeing aircraft and is a low-cost airline flying primarily out of East Midlands and Birmingham airports.
bmi reported gross assets of £284 million as at December 31, 2010 and a £153 million loss before tax on revenues of £777 million for the year 2010.
So what new things do we learn?
- BMI is loosing money hand over fist still.
- BMI’s pension scheme is still Lufthansa’s problem (operated by a LH controlled UK holding company)
- IAG gets a significant price reduction if Lufthansa fails to sell BMI Baby
- BA Brand gets a chance to launch more long-haul routes out of London Heathrow
- Belfast to retained as a destination from London
- IAG remains “London focused” with it not wanting to deal with BMI Baby – showing what BA’s attitude to the regional areas of the UK
- It’s still all down to the competition authorities.
There will be further coverage of this during the day, including an analysis later on today.
