Friday, May 18, 2007

Business Update: Airplanes and Metals (Aeroflot - Alitalia; Norilsk Nickel - LionOre)

Aeroflot - Alitalia

Aeroflot, which has been permitted into the second and most likely final round of bidding for the ailing Italian flagship carrier Alitalia has begun "hunting" for money to finance the deal. According to Vedomosti, Aeroflot, which has teamed up with Italian bank Unicredit, is looking to obtain 500-900 million Euros for the 39.9% stake of the Italian government in Alitalia. The Russian carrier intends to use only external funds in the deal, and has sent letters requesting funding proposals to the top twenty investment banks located in Moscow. Analysts cited by Vedomosti say that the credit that Aeroflot is seeking is fairly large but should be compensated by the steady cash-flow of the company and the virtual debt-free condition of Alitalia. Previously the blog has reported the news of Aeroflot seeking to buy Alitalia.

Meanwhile Alitalia is encountering events likely to trigger complications to the privatization of the company. The Financial Times reports that the airline is set to write-down over 400 million Euros in fleet value which will reflect negatively on its earnings this year. The company's shares have been in free-fall for the past weeks, already at 0.87 Euros, after it became clear that the target acquisition price of all the bidders will not exceed 0.50 Euros per share (a 40% discount to the company's current value. The company has recently been involved in a pay dispute with its staff which has caused major delays and contributed to the major losses to the company's bottom line. All these events are making the company seem cheaper for the bidders.

Norilsk Nickel - LionOre

In the continuing battle for Canadian nickel miner LionOre, the original bidder Swiss-based Xstrata trumped the bid by Russian Norilsk Nickel, now offering 16% more for the company representing a total of $5.6 billion. Xstrata's second offer represents a 35% premium to its original offer. Further disappointing the management of Norilsk Nickel, the Financial Times reports that Xstrata has gained approval for its second offer from LionOre's board, effectively locking up close to 20% of the company's shares. It has also received the necessary approvals from Canadian and EU authorities for the acquisition. The initial details of the deal were covered in a previous post in this blog.

Analysts cited by Vedomosti, claim that Norilsk Nickel must offer at least 20% more than Xstrata for the company to generate interest from the board and the shareholders of LionOre. Whether the deal at that point will be cheap remains questionable. Despite a greater business tie-up between LionOre and Xstrata, Norilsk Nickel is very keen to continue expansion into foreign markets to catch the last few waves of consolidation within the commodity industry. The Russian company, headed by Vladimir Potanin has till May 25 to come up with a competing bid.

No comments: