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Germany: Lufthansa in early talks on possible tie-up for caterer LSG

 |  December 16, 2018

Lufthansa is in early talks about a possible tie-up between its LSG Group catering unit with partners such as Austria’s Do&Co, Singapore’s SATS, and Switzerland’s Gategroup, people close to the matter said.

Lufthansa is exploring its options with the help of Morgan Stanley, but has not launched a formal sales process, sources told Reuters.

Lufthansa CEO Carsten Spohr told a newspaper last month that the German airline was considering divesting LSG.

“We have not defined whether this (sale) would go ahead, or whether we would hold on to LSG in full,” he told the Boersen-Zeitung newspaper, adding the company would not support a sale to private equity.

A Lufthansa spokesperson said the airline had no additional comment. SATS, Do&Co, Gategroup owner HNA, and Morgan Stanley also declined to comment.

A deal could value LSG at roughly €1 billion (US$1.13 billion), people close to the matter said, but noted that antitrust issues might prevent some players from being able to buy all of LSG’s assets, meaning a partial sale is also possible.

Vienna-listed Do&Co, which has a market capitalization of €830 million (US$938.1 million), is too small to do a deal on its own, the sources said.

Do&Co has reached out to investors who could potentially help it finance a deal, they said.

Do&Co has been catering for Lufthansa’s Austrian unit Austrian Airlines since 2007 and for its Swiss unit since mid-2018. Its other customers include Turkish Airlines and, from 2020, IAG’s British Airways and Iberia.

SATS, 41.5% owned by Singaporean state fund Temasek, would likely not face financing issues but a deal of this size has not figured high on Chief Executive Alex Hungate’s agenda, a person close to the matter said.

The company, spun out of Singapore Airlines in 2009, has focused on Asia and has not made large acquisitions.

Gategroup, owned by Chinese conglomerate HNA, is also a possible partner for LSG, the sources said, but added that current financial strains faced by HNA might dissuade the company from entering into a large cash deal.

After a failed listing of Gategroup earlier this year, Temasek and RRJ Capital subscribed to a five-year mandatory exchangeable bond which upon conversion will account for up to 49% of its share capital.

For the first nine months of the year LSG reported a 50% rise in adjusted earnings before interest and tax to €99 million (US$111.9 million).

The business is challenged by a large number of locations it serves, high staff costs, and exposure to currency exchange rates, Lufthansa’s Spohr said recently.

Full Content: Reuters

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