Merger proposal: Deutsch Lufthansa AG – SAS AB

Résumé du document

The success of Lufthansa is based on the outstanding team performance of our employees, our coherent strategy, the consistent tapping of market potential, future-oriented investment policies and sustainable cost discipline," according to CEO Wolfgang Mayrhuber. Lufthansa intends to be a leader in the consolidating airline industry by staying ahead of trends and increasing access to the most profitable markets in the EU and internationally. He defines three main steps LH has to take to defend its market position. First, defend the German home market, second, become indispensable in the European market through integration of carriers with complementary networks, and third, defend global markets through strategic partnerships and investments in services to/from emerging markets.

Lufthansa wants to replicate the success it had with the Swiss merger and subsequent integration, which tapped significant synergetic potential. With its takeover of SWISS and now SAS, Lufthansa is improving its position as the leading European network carrier. The integration of Swiss led to an enhanced position in particular in the Alpine region, southern Europe, and Africa. SAS, on the other hand, contributes access to a strong customer base in Scandinavia, Spain, and partially the U.K. SAS benefits as the Group obtains a strong partner in Lufthansa, which is both well-positioned in international airline markets and can also offer the necessary financial strength for further growth initiatives.

Extraits

[...] The latter will be significantly added for the small regional carriers. External Factors Driving Industry Consolidation Since the early 1990s, the European airline industry has seen a series of cross-border mergers and acquisitions. Industry consolidation has been accelerating over the last five years with the most notable merger coming between Air France and KLM, which created the largest carrier in terms of total operating revenues, and the third largest in the world (the largest in Europe) in terms of passenger-kilometers.[4] In 2005, Lufthansa acquired and successfully integrated Swiss. [...]

[...] We have identified six main sources of strengthening of our core business: Improving the efficiency of Lufthansa and SAS's intra-European networks. Strengthening the European feeder network for long-haul routes. Incorporating SAS Group's hubs to refine Lufthansa's multi-hub system Harmonizing services and systems in cooperation with partner airlines owned by the SAS Group (SAS, Braathens, Spanair, etc.) Enhancing product quality and innovation at a lower cost as done before at Swiss International Airlines. Improving unit cost advantage through economies of scale in hubs. [...]

[...] If necessary, we offer the following: in order to preserve the Scandinavian air traffic infrastructure for the long term, an independent foundation will be established under Swedish or Danish law for a period of ten years, which will be able to elect a member to the Lufthansa supervisory board and two members to the SAS board of directors. If SAS is non-responsive to enter into a merger agreement our BATNA (Fisher, Ury, & Patton, 1991) is the purchase of Iberia. The purchase of Iberia would be quite expensive, current market cap. is 3.8 bn euros, and smaller than SAS. [...]

[...] Exhibits Exhibit Principal Shareholders in SAS AB at March The number of shareholders in SAS AB amounted to on March Source: http://www.sasgroup.net/SASGroup/default.asp Exhibit SAS Group's Business Areas Source: http://www.sasgroup.net Note: SAS flight Academy was sold in February 2007. Exhibit Pro Forma LH & SAS Exhibit 4 Bibliography Andal-Ancion, A., & Yip, G Smarter ways to do business with the competition. European Business Forum, 32. Bacharach, S Organizational theories: Some criteria for evaluation. Academy of Management Review, 14: 496-515. Barney, J. B Firm resources and sustained competitive advantage. Journal of Management, 17:99-120. [...]

[...] Long-term prospects are opening up for the SAS Group and its employees. Integration The first priority of the integration process will be the coordination of network management and harmonization of flight timetable in the core business passenger transportation. Joint flight operations will be effective starting with the winter schedule 2007/08. We will further optimize both airlines' networks, especially the feeder traffic for long- haul flights in the 2008 summer timetable. Consequently, substantial synergies in our core business will be realized within the very first year following the merger. [...]