The Air France - KLM Merger Story
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Case Code: BSTR124 Case Length: 22 Pages Period: 1998-2004 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.500 Organization: Air France, KLM Industry: Civil Aviation Countries: Europe, France Themes: Mergers Acquisition and Takeovers |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The deal marked a defining moment in the evolution of the European airline industry."
- Jean-Cyril Spinetta, CEO, Air France.
"Through this innovative partnership with Air France and our extended participation in the Sky team alliance, we are confident we have secured a sustainable future."
- Leo Van Wijk, President & CEO, KLM.
Introduction
On September 30, 2003, Air France and KLM Royal Dutch Airlines (KLM) announced their merger plans pending the necessary approvals to be granted by the European commission and the US Department of Justice. Soon after receiving the approvals, in April 2004, Air France launched a public offer to exchange all the existing ordinary equity shares of KLM. The offer was successful as 89.2% of the shares were tendered by KLM shareholders. The merger gave birth to the world's largest airline company, called Air France-KLM. Analysts termed the merger 'unique.' Despite the union, both companies would keep their brands alive by flying their planes in their respective names. As per the new organizational structure, the shares of Air France-KLM would be listed on stock exchanges. The merged entity would hold 100% stake in both the operating companies - Air France and KLM (Refer Exhibit I).
Jean-Cyril Spinetta (Spinetta), the CEO of Air France since 1997, became the CEO of Air France-KLM and Leo Van Wijk (Wijk), the President & CEO of KLM became the Vice-Chairman of the Board of Directors of the merged entity. Though the managements of both companies were optimistic about the potential synergies that could result from the merger, a few analysts pointed out possible pitfalls. They commented that significant cultural differences existed between the two companies because of their different nationalities. They also felt that Air France's estimate of the synergies from the merger and the acquisition price paid by the company was on the higher side. Analysts also recalled that earlier, merger talks between British Airways6 and KLM had not materialized. Moreover, KLM's strategic alliance with Alitalia (Italy's leading airline) had fallen apart in 2000. They raised doubts about the success of the merger. However, Spinetta was confident that the merger would be a success. In a meeting with industry analysts on November 21, 2003, he said, "In June 2005, we will publish the first Air France-KLM joint results and I am convinced they will demonstrate the appropriateness of our strategy."...
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