Merger of Bmi by Iag

1. Introduction

Merger and acquisitions (M&A) are significant elements of dynamic economy at different stages of an industry or a life span of a company the growth rate reaches saturation levels and it slows down in a way the company or the industry is almost going backwards and to revive the growth and to shake up the industry M&A start taking place and sometimes it increases competition instead of decreasing it as other players in the industry are pushed out from their comfort zones, acquisitions that reduce excess capacity or put companies in the hands of better owners or managers typically create value for both the economy as a whole and the acquirer and its target (Koller et al, 2010)

IAG group “International Airlines group” has become one of the largest airline groups in the airline industry after the merger of British Airways and Iberia in 2011 with a fleet of 348 airplanes and 200 destinations worldwide and now the new member of the group is BMI, IAG’s headquarters are in London UK and listed in both London Stock exchange and Spanish stock Exchange, although both BA and Iberia have merged into IAG but they still kept their separate entity as an airline and considered subsidiaries of IAG but the merger of BMI is a different out as the brand will gradually disappear and flight numbers are already changed on some of the routes from BMI flight numbers to British Airways flight numbers.

With the acquisition of BMI by IAG the group has become the third largest group in Europe and sixth largest in the world. BMI was a Start Alliance member and now it is a one world member after the acquisition (IAG, 2012).

BMI was not money making business for Lufthansa and estimated to be losing about £3 a week which did drive the profits of Lufthansa down and was eager to sell BMI. BMI’s main airline flies to Europe, Middle East and Africa and this will be integrated into British Airways at the cost on £100 for rebranding and paying for staff redundancies, the cost will be over a 3 years period and majority over the first year. British Airways said the merger could lead to employees losing their jobs at BMI and estimated the number to be around 1,200 jobs and for this reason British Airways had begun to take meetings and consult with unions regarding this matter and among the 1,200 employees is about 470 employees at BMI baby and 330 and BMI regional (BBC, 2012).

2. Drivers behind IAG BMI Merger

To create value form acquisition is to buy cheap, in other words to buy cheaper than the actual market value of the target company and these opportunities are very rare and relatively small especially when it comes to companies with a good reputation and the acquirer have a strong brand name but there can be brief periods when such an opportunity arise and in the IAG/BMI merger case it was the huge losses left by BMI on Lufthansa which