Mergers in the air
The next airline dominoes
After the announced merger of KLM and Air France, most international airlines may be on the way. One likely pairing is British Airways (BA) and American Airlines (AA), a combination which would yield the #1 airline in the world. BA had 2002 revenues of around $12 billion, while AA took in around $17 billion).
BA is particularly worries about the transatlantic alliances that the new merged airline will have with US carriers Northwest, Continental, and Delta. According an article in the Guardian ("A worried BA turns up the heat on competition watchdogs," 10/26/03), "BA is worried that KLM and Air France could form a five-strong network with their US partners, helping them to boost Amsterdam and Paris over London as the key European arrival hubs for American travellers."
BA and AA have already proposed a merger, but US antitrust sources made too stringent concessions for the merger to take place. BA is hoping, with a precarious new airline reality post 9/11, and with the example of Air France/KLM, that this may be the time to get such a deal approved.
Also on the table is a merger of BA with Spanish airline Iberia.
AT & T and Bell South
Last year it was BellSouth and Sprint. With an executive shake up, the national phone company looks like it might get hitched with aggressive regional Bell operating company, BellSouth. The two companies started negotiating in earnest. (Sprint had 2002 revenues of around $12 billion, BellSouth around $22 billion.)
Those talks bogged down, and now it looks like AT&T is interested in being acquired by BellSouth. With a shaky telecom market, AT&T (the #1 US long distance company) is looking around for another partner, and it is selling for a very low price. As a Wall Street Journal article ("Are BellSouth and AT&T Altar-Bound?", 2/4/03) noted, there are lots of perils in the match - AT&T (with around $38 billion in revenues) has been heading down as its consumer base is shrinking and its big business base is static. If the economy does grow, however, it may be a steal. Sprint, if spurned by BellSouth, faces similar problems to AT&T .
All this indicates a US telecom business ready to consolidate even further. As the WSJ article says:
In an industry in dire need of consolidation, Sprint isn't at the top of many shopping lists. Of course, consolidation will be necessary in telecom for months to come. As the other Bells - especially Verizon (VZ ) and SB - gain long-distance approval and regulatory issues work themselves out, they may look to round out their portfolios.
The prospect is fascinating: Baby Bell BellSouth taking over its old parent, AT&T , from which it was split off in 1984. The court decisions that mandated competition in the phone industry is piece by piece being nullified.
Multinational utility
German utility firm E.On announced it is acquiring of UK's Midlands Electricity. The purchase, for over a billion dollars, will double the size of the German company's UK holdings, in yet another rollup of local monopoly utilities. E.On, through its Powergen subsidiary, already owns neighboring East Midlands Electricity. The British company was owned jointly by two US firms, Aquila and FirstEnergy.
This is not the first buy of the year, as E.On acquired German utility Ruhrgas in January. It reportedly has over $17 billion in the bank for future purchases.
E.On has operations in Germany, the UK, and in the US. The US dealings under its subsidiaries LG&E (Louisville Gas & Electric) and Kentucky Utilities. It is now the top gas producer and the #2 utility in Germany. The $39 billion company seems to be changing itself from a conglomerate with interests in real estate, chemistry, and computers, to dedicated utility oligopoly.
Just like other industries, the utility industry is consolidating piece by piece, and it is going multinational.
