pauldb

Hard to say. The call price could also be related to BD's performance, i.e. a set multiple of revenues or profits, perhaps with a minimum 40% above the put price.

In any case it would have to be higher than SMB's put price (the put price provides a floor value for him to exit, the call price a limit to the price LH have to pay).

In fact the put price wouldn't mean LH is getting an enormous bargain - it might be a price SMG decides to take. BTW, the telegraph says the put price rises with inflation, so I reckon it values the whole biz at £540m by next year.

I'd say BD's performance has probably been at the low end of what was expected in 1999 (to last yr revs grew from 905m from 613m but pretax profit to only from 30m from 11m). Most of the big airlines tend to be valued, very roughly at around 0.5x revenue so 540m for BD is not cheap. But that is offset by net cash of about 100m.

Independently, BD isn't worth as much in my mind as a major because it has a low net margin (less scale = higher operating costs as a % of revs). If LH threaten to walk away and BD stays independent, SMG will have trouble getting a 540m valuation (about 27x profit after tax). Hence the put valuation might be tempting.

On the other hand, LH might be reluctant to get BD at the moment, and SMG might wish to prove he can make a success of longhaul, so the two parties could agree to push back the puts/calls and alter their prices accordingly. The may be what the banks are looking at???

SmilingBoy

I'm not so sure. Of course, this will be a complicated, tailored contract. But I doubt that S&P would call it a call option if it isn't similar to a normal financial call option. And normally, a call option will have an exercise price, which is determined at the time the option is created.

RAPC

That was what I was thinking as well. It would have been rather foolish to set a price so early for the call option. Whatever happens, SMB won't be too badly off if he chooses to accept a bid.

RAPC

pauldb and SmilingBoy - thanks for teaching me something new today. Good to know these things.

SmilingBoy

Correct - this is a possibility. But there will be hard formula in the option contract which determines the price, rather than a "fair" valuation (which doesn't really mean anything).

GUWonder

LH would want BD for its slots at LHR. The value of those things still seem to be rising.

SASfan

How would this affect BD's outstanding frequent flyer program?

i.e., miles + cash awards, with ability to cash in 1-way awards...

LonLH

Based on what happened to Swiss, if LH buys BD I would assume at some point in time BD miles will be converted to LH miles and LH rules will apply.

LonLH

I would assume that it will either have a hard price or (more likely) a pricing formula which will be very objective and difficult to dispute.

SASfan

Geez, this would be terrible! I have been following this thread for awhile and had planned to start accumulating *A miles with BD to redeem for some of the creative itins that I've learned about here.

RAPC

Well as long as you are looking to earn and redeem in the next 12-18 months, then you should be pretty safe. ^

SASfan

I live in Santiago, where the Star Alliance presence is nonexistent.

Moving to IAD area next year, but don't know if I'll have enough time to accumulate sufficient BD miles to burn. I'm on the fence whether to accumulate with UA, BD, or LH (right now am leaning in that order...)

What do you guys think?

lhrpete

If LH really are serious about acquiring BD it kind of explains why they have recently lost interest in both IB and AZ although given the tie up with Air One, they might still have a finger in AZ somewhere. All that said, the LHR slots would probably be the icing on the cake in terms of acquisition and I can't see them walking away from that and leaving the way open for someone else to make a move on BD and offer SMB a price he couldn't refuse. I think it's a done deal.

M&M isn't so bad and there are quite a lot of features to it that DC lacks....

NickB

Yes, but the demographics of the UK elite members is bound to change substantially.
As someone who gains status primarily on self-paid leisure travel, I don't think that I could maintain *G in M&M the way I do it in DC. It would probably mean that I would focus on maintaining the BA Gold and not fly much *A anymore.

ajamieson

And I might well be off to the Leftover Alliance

Assuming Diamond Club does become Miles & More, what sort of timescale might we have for spending miles? I take it the absorbtion of Swiss didn't happen overnight.