Lufthansa, SAS Downplay Talk Of Merger

January 9, 2007

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SAS and Lufthansa played down market speculation of merger talks on Tuesday, speculation which sent SAS shares up more than 5 percent.

The rumors were a repeat of talk which emerged in September last year after the new Swedish government named SAS as a potential privatization target.

"Rumors are circulating that they (Lufthansa) are in merger talks with SAS, but that could also be based on the fact that Goldman suspended its investment rating and price target due to compliance issues," said a German trader.

Lufthansa said the SAS takeover talk was "all speculation" and that it had not given Goldman Sachs a mandate for any merger and acquisition transaction. A spokesman for SAS said he was not aware of any bid approaches.

A Lufthansa spokesman said Goldman was advising KarstadtQuelle after the German retailer agreed to buy out joint venture partner Lufthansa's stake in tourism firm Thomas Cook for EUR800 million (USD$1.04 billion) last month.

Given the involvement of the three governments in SAS, any selloff in the airline is expected by analysts to be complicated. This is also because Norway has been against any sale of its stake.

"Through the Star Alliance co-operation all synergies have been drained... a bid would be a defensive move by Lufthansa to prevent other players from buying SAS," said analyst Stig Nymann at Danish brokerage Gudme Raaschau.

Sweden has 21.4 percent of SAS, and Denmark and Norway have 14.3 percent each.

(Reuters)