The 'FUTURE OF BMI' thread, the LH takeover, & what it might mean for Diamond Club...
 

MODERATOR'S EDIT:

This is the consolidated thread for discussion of the future ownership of bmi and what a change of ownership might mean for Diamond Club. It is a merge of several threads.

Some key points that have already been discussed in this thread:

• Bmi is privately owned, and therefore can be sold but not taken over
  
• Lufthansa currently owns 30% minus one share in bmi
  
• SAS is currently selling its 20% stake in bmi
  
• Lufthansa is a likely buyer of bmi, leading to speculation that Diamond Club could one day be replaced by Miles and More under LH ownership. Lufthansa has a call option to buy the share-holding of 50% plus one share between December 2008 and June 2009. In turn, the current holder of the largest single share, Sir Michael Bishop, has a valid put option to sell the stake (valued at £229 million when the original deal was concluded in 1999) to Lufthansa, exercisable until June 2009. It is not clear if the put will be exercised at the agreed price. And even if LH bought bmi from Sir Michael Bishop, it could sell it on again.
  
• There has been extensive discussion of a possible deal between Virgin and bmi
  
• BA has expressed "interest in bmi's future"
  
• The controlling bmi has finally been sold by SMB to LH; SAS retains its 20% for now
  
• SAS offloads its 20% to LH, with guaratees on a swetner if bmi is sold for a good price, and almost immediately a new, heavy hitter CEO is introduced leading to the belief that LH might try to make bmi viable - and a sale will come later or, perhaps, not at all, rather than immediate dismemberment
  
• New CEO takes office; LH quoted as having decided to not sell bmi for now, but to concentrate on turning it around
  
• LH/bmi IT dept. freaks out the community by posting M&M migration links on the website, causing brief panic; Diamond CLub subsequently announces a limited migration 'offer' in the Netherlands, Isreal and Georgia.

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I found an article on FT today that LH have got the banks involved in looking into acquiring the put option on SMB's 50% + 1 share stake in bmi

http://www.ft.com/cms/s/2/cdda4156-a...0779fd2ac.html

looks like its time to start using up those destinations miles...

Yes. I am not a big fan of LH's Miles & Less program.

Might be a little early as there are no indications the SMB wants to sell - and if he doesnt I dont think there is anything LH can do.
Cant help thinking that SMB has campaigned for LHR-US for nearly 20 years and so why sell before that happens?
If BD do go to the US in 2009 - it coincides with the second SMB put option then so that might be the time :confused:

Is Miles and More that bad? I have never really looked at it. I know BD is generous but assumed M&M was no wrse than say Krisflyer.

One ways are 75% on M&M. :td:

Pathetic really. Surely ifyou travel half the journey, you pay half the journey? Not rocket science!

Try AC, if you aren't their Top Tier Elite (100k) you can easily pay more than double the cost of a return for a one way.

While both the put options are mentioned in Raffles post from November 2005 (see http://flyertalk.com/forum/showpost....64&postcount=1), he also mentions a call option in a post from June (http://flyertalk.com/forum/showpost....0&postcount=17). So, if LH really has this call option, the story might make more sense.

On the other hand, the value of BD's opportunities out of LHR might be higher before they lost a lot of money on new US routes ;)

No need to rely on FT posts for this information, when the information is published:

"Lufthansa's most significant derivative position recorded on its balance sheet relates to its holding in U.K.-based airline, British Midland Airways Ltd. (BMI). At Dec. 31, 2006, Lufthansa included a liability of €212 million within current derivative financial instruments, which relates to the estimated negative market value of a put option granted to the main shareholder of BMI. Lufthansa currently owns 30% minus one share of the group and has a call option to buy the share-holding of 50% plus one share between December 2008 and June 2009. In turn, the current holder of the stake, Sir Michael Bishop, has a valid put option to sell the stake, valued at £229 million when the original deal was concluded in 1999, to Lufthansa, exercisable until June 2009. We have not included the value of the put option within our adjusted debt figure since the likely increase in value of the BMI stake following the conclusion of "open Skies" aviation treaty makes it uncertain whether the put will be exercised at the agreed price."

Quoted from page 12 of http://www.lufthansa-financials.de/s...aug%202007.pdf (a Standard & Poor's analysis of Lufthansa from August 2007)

SmilingBoy.

deleted

Beaten to it by SmilingBoy!

My completely uninformed, speculative guess is that LH will buy the 20% bmi shares from SAS sometime in 2008, and the 50% rest form Bishop in December 2008. Co-ordination of timetables, and start of integrating bmi into M&M from March 2009, with a full integration of bmi into M&M from January 2010, and a complete integration of bmi and LH from October 2010. bmi brand will be kept probably.

This is at least a possible timetable if things work similarly as with Swiss.

Can you explain why there is both a call and put on the shares at the same time? How does that work?

Sir Bishop has a put option, which means he has the right to sell his stake to LH at a pre-agreed price. It seems from the S&P analysis that bmi appears to be valued significantly higher than this pre-agreed price, so it is unlikely that Sir Bishop will exercise this option (as he would probably get a better price somewhere else).

Lufthansa has a call option, which means that they have the right to buy bmi at a pre-agreed price.

Thanks. So, if LH want - they can exercise their call option - SMB has to sell and that's that. Hello M&M.

Will this definitely be at a pre-agreed price, or subject to market valuations at the time? i.e. It is June 1st and Lufthansa offer xxx as a fair market valuation.

Just wondering as I don't have any knowledge of such high end financial matters.

it appears from the above that the put option is at an agreed price, but the call option is not. I would think that if the call option was at the 1999 value, then it would be a no brainer for LH.