The Italian Ministry of Economy and Finance has selected a consortium that includes Delta Air Lines, Inc. (NYSE:DAL) and Air France-KLM (AFLYY) to conduct exclusive talks for the sale of a majority stake in its flag carrier, ITA Airways. If the deal pans out, it could expand DAL’s presence in the North Atlantic market, which would mean more revenue for the company.
The consortium, which is led by U.S.-based equity fund Certares, beat a bid by Germany’s Deutsche Lufthansa AG (DLAKY) and Swiss container shipping company MSC.
DAL’s consortium has reportedly offered to pay around €600 million for a 60% stake in ITA Airways, compared to MSC and Lufthansa’s offer of €850 million to €900 million for an 80% stake.
Commenting on the news, the ministry said, “After exclusive talks, a binding agreement will be signed only if the outcome will be fully satisfactory for the public shareholder.”
Meanwhile, a DAL spokesman said, “Delta looks forward to forging even closer commercial ties with ITA Airways.”
The deal could expand Delta Air Lines and Air France-KLM’s presence in the North Atlantic market, an Air France-KLM spokeswoman said. It would also connect ITA’s frequent flier program to Air France-KLM’s Flying Blue and Delta’s SkyMiles reward programs.
However, the Franco-Dutch airline does not plan to invest in ITA immediately and could consider acquiring a minority stake in the medium term. Delta Air Lines also intends to invest in the Italian airline at a later stage.
A Lufthansa spokesperson expressed discontent that Italy had not chosen them (Lufthansa and MSC) so that the government could hold a higher stake in the flag carrier.
Stifel Nicolaus analyst Johannes Braun said, “This is surprising because MSC-Lufthansa was previously considered the preferred bidder.”
The Italian government is pushing for a preliminary deal before the general elections on September 25.
Is Delta Air Lines a Buy or Sell?
As of now, Delta Air Lines seems to be a good investment option. This is because DAL stock has a Strong Buy consensus rating, which is based on 10 Buys and two Holds. As per TipRanks, DAL’s average price target of $46.95 implies 51.1% upside potential.
Also, DAL stock scores a “Perfect 10” on TipRanks’ Smart Score rating system, suggesting that it has strong potential to outperform the market. Hedge funds, too, are bullish on the stock. TipRanks data shows that the 18 hedge funds that were active in the last quarter increased their holding in DAL stock by 4.7 million shares.
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