Alitalia shares fell 7 percent as it awaited a formal takeover offer from Air France-KLM after a report suggested the bid valued the money-losing carrier at less than half its current share price.
State-controlled Alitalia has lost money for five years in a row and is racing to wrap up a sale to long-time partner Air France-KLM before its fast-dwindling cash reserves dry up.
Air France-KLM is expected to offer one share for every 70 of Alitalia's with Italian directors nominated to the Franco-Dutch carrier's board getting veto powers, Italian news agency Radiocor reported on Friday.
That offer would value Alitalia at EUR317 million euros (USD$494 million) or 0.23 euros a share -- a 56 percent discount to Alitalia's latest price.
An Alitalia spokesman said the airline had yet to receive the binding offer and was unaware of any bid ratio reported by the press. An Air France-KLM spokeswoman declined to comment.
Alitalia's board meets on Saturday to examine the proposal and discuss its precarious finances.
Italy's outgoing government is expected to examine the offer next week, but Air France-KLM has said it will not conclude a deal until it gets the blessing of Alitalia's unions and Italy's next government, to be elected in April.
Alitalia shares closed down 7 percent at 0.53 euros in the main session, after falling 9 percent earlier on reports the French carrier planned to carry out a more drastic restructuring than expected.
Shares in Air France-KLM, the world's largest airline by revenue, rose 1.2 percent to 15.98 euros.
Italian daily La Repubblica said the Italian government, which is selling its 49.9 percent stake in Alitalia, was alarmed that its stake in the combined group could fall to 2 percent and that up to 4,000 jobs would be cut under the latest plans.
The government was previously expected to hold a 3 percent stake after the takeover and only 1,700 jobs -- or about 15 percent of Alitalia's workforce -- were forecast to be cut.
However the reported share swap ratio would on paper imply the government exchanging its 49.9 percent stake in its national airline for some 3 percent in the Franco-Dutch carrier.
Italian officials played down fears over the plans, saying they had yet to see Air France-KLM's offer.
"There's no news of any type, we expect it this evening," outgoing Prime Minister Romano Prodi said in Brussels.
Transport Minister Alessandro Bianchi said the formal offer was expected to arrive before midnight local time (2300 GMT).
Italian news agency ANSA said Air France-KLM's plans included cutting 500 pilot jobs and grounding 42 planes by year-end -- both more drastic than initially expected.
"Finally we will get to see this offer," said a trader in Milan. "Given anything above zero will be a good sum, we don't expect a value of more than 0.30 euros a share."
