M&A Between KLM and Air France

In today's market the main objective of the firm is to make profits and create shareholder wealth. Growth can be achieved by introducing new products and services or by expanding with its present operations on its existing products. Internal growth can be achieved by introducing new product s however external growth can be achieved by entering into mergers and acquisitions (Ghoshand  Das,2003). mergers and acquisitions an external growth strategy has gained spurt because of increased deregulation, privatization, globalization and liberalization adopted by several countries the world over. Merges and acquisitions have became an important medium to expand product portfolios, enter new markets, and acquire technology, gain access to research and development and gain access to resources which would enable the company to compete on a global scale .However there have been instances where mergers and acquisitions are been entered into  for non value maximizing reasons i.e to just build the company's profile and prestige.

consolidation in the form of mergers and acquisitions has been witnessed around the world in almost all the industries ranging from automobile, banking, aviation, oil and gas to telecom. Some of the biggest mergers in airline like Air France and KLM  are the ones which the world can never forget.

The news of merges is very sensitive that it can immediately impact the price of the share months before the actual merger take place for both the involved companies. The information and news which can flow can bring in positive or negative sentiments which would lead to a rise or fall in share price and ultimately shareholders wealth. The perception of information about merger is such that it tries to project the future increase or decrease in the cash flow derived out of the combination.

The following table would depict the change in share price of the acquiring company company on the day when the merger and acquisition announcement was made.

Acquiring company	Target company	Movement in price of the stock
Air France	KLM	+4%

Source: Yahoo finance website

Air France and KLM expected profit to increase after five years as a result of cost saving, rescheduling of routes and improved fleet utilisation. According to the financial times, the cost saving as (pitiful).The proposed cost savings from Air France-KLM are negligible and take far too long to emerge, the industry has too much capacity and just putting two airlines together is not enough.

As a result of the merger, the combined group expected savings of $220 million per year and this will lead to job cuts, meanwhile Air France will axe the onward Birmingham-Glasgow service and will also cancel its Bristol route because these routes had all been losing money.

the merger come against a background of financial pain throughout the airline industry, caused by 9/11 hangover, the sars crisis and the success of low cost carriers, such as Ryanair.

Therefore, although this M&A brings some job losses  in the first stage but it will brings other benefit in the organization in feature such as the market power.