11/02/12, 21:38:44 EST

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Air Berlin to buy airline from Thomas Cook

iht.com

LONDON: Air Berlin, the biggest German discount airline, has reached agreement to buy Condor Flugdienst from the tour operator Thomas Cook for up to €475 million in stock to add routes and planes.

The stock portion of the deal, valued at $667 million, would leave Thomas Cook, based in Britain, with 29.99 percent of Air Berlin stock, Thomas Cook said Thursday. It will also receive €120 million in cash.

Condor is Air Berlin's third major purchase in a year as the carrier seeks to compete with its larger rivals, Ryanair Holdings and EasyJet. For Thomas Cook, the second-largest European travel agency after TUI Travel, the deal fits with a strategy of scaling down operating assets to reduce risk following its merger with MyTravel Group in June.

"The Condor deal equates to almost 50 percent of Air Berlin's market value so this is a huge bet," said Joe Gill, an aviation analyst with Goodbody Stockbrokers in Dublin. "Acquisitions are easy in the airline business, but creating shareholder value is tough."

Air Berlin shares fell 12 cents to close at €12.97 in Frankfurt. Its shares have declined 21.4 percent this year.

Thomas Cook rose 3.5 pence to close at 282.5 pence, or $5.68. The holding company Thomas Cook is 52 percent owned by Arcandor, the largest German department-store chain, formerly known as KarstadtQuelle.

"We want access to Air Berlin's capacity and influence over that capacity," the chief executive of Thomas Cook, Manny Fontenla-Novoa, said during a conference call. "We will become their most important and largest customer." He said there were no plans to increase the stake further.

The Condor purchase adds 35 planes to the 131 operated by Air Berlin. Last month it won antitrust approval for the €140 million purchase of LTU, an unprofitable German charter carrier, which will allow Air Berlin to offer long-haul flights.

Air Berlin will purchase 75.1 percent of Condor from Thomas Cook in February 2009, the companies said. At the same time, the travel operator will exercise a right to buy the 24.9 percent of Condor held by Lufthansa, before selling that stake to Air Berlin a year later. In return for its stake in Condor, Thomas Cook will receive new Air Berlin stock worth €380 million, plus about €100 million based on Air Berlin's share performance.

Savings from the combination will amount to at least €70 million a year, Air Berlin said. Thomas Cook said the deal should add to profit in the year through October 2009.

"This is a strategically and financially sensible transaction," Simon Larkin, an ABN AMRO analyst based in London, wrote in a note. "It adds scale to Condor and is consistent with Thomas Cook's asset-light strategy."

The deal must be approved by regulators and is also dependent on Lufthansa not exercising its own right to buy Condor shares, the statement said.

Lufthansa has not received an offer for the Condor stake, its chief executive, Wolfgang Mayrhuber, said at a Frankfurt news briefing.

 Printable Version  | published Sep 23, 2007