Italy approves Alitalia takeover

Alitalia has been losing money for years

Italy's government has approved the takeover of struggling national carrier Alitalia by rival Air France-KLM for a lower-than-expected price.

Italy's government, which owns 49.9% of Alitalia, said it agreed with the board's decision to accept the deal, although unions have voiced objections.

Shares in Alitalia plunged on Monday after the offer terms were disclosed.

The offer valued Alitalia at 138m euros or 0.10 euros per share, an 81% discount to its stock price on Friday.

Alitalia shares fell 27% to 0.39 euros in Monday trading.

Alitalia, which has lost money for five years, had little choice but to accept the deal, analysts said.

"Air France-KLM is Alitalia's only alternative to bankruptcy," said Alessandro Frigerio, a fund manager with RMJ in Milan.

"The price offered by Air France reflects the difficulties of dealing with Alitalia's stake holders, including the government and the employees."

Air France-KLM offered one share per 160 Alitalia shares.

The offer includes plans for a 1bn euro capital injection by the Franco-Dutch airline, which says it will also pay 608m euros to buy back Alitalia bonds.

Alitalia, which is struggling under 1.2bn euros of debt, is hoping the tie-up will generate significant savings.

Air France-KLM has a restructuring plan for Alitalia to enable it "to rediscover the means of its development and to consolidate its status as a national leader".

And it said Alitalia will maintain its national identity within the Air France-KLM group after the takeover, which could be completed by mid-2008.

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