Deutsche Lufthansa AG’s share price down, to sell information-technology business to International Business Machines Corp.

October 22, 2014 12:44 pm

Deutsche Lufthansa AG made an official statement today that it intends to sell a stake in its information-technology unit to International Business Machines Corp. Lufthansa agreed to sign a seven-year service contract with IBM in order to cut expenses.

The Chief Financial Officer of the company, Simone Menne, took a statement, cited by the Wall Street Journal: “It will directly improve our cost base and allows access to the latest IT technologies, which we will use to continue digitizing our business processes in order to increase efficiency and customer focus.”

The deal is considered as a part of larger restructuring of the company’s systems division, which is expected to lower the long-term expenses. However, this step resulted in a €240 million ($305.2 million) charge in 2014. Lufthansa, which is the biggest airline by revenue in Europe, is currently facing difficulties, which have led to restructuring plans and cost reduction efforts, as the company is trying to consolidate its positions and become more competitive on the low-cost carriers’ market.

Earlier in 2014 Lufthansa officially announced that it was trying to find an appropriate buyer for the division. The IT unit of the company provided networks and telephony, as well as data centres, but Lufthansa was unable to provide the amount of investments the division needs.

The contract, which is to be signed between Lufthansa and IBM, is expected to help the airline carrier lower its IT unit costs by €70 million each year, according to what Lufthansa projected in its statement. The deal between the companies will need the approval of the supervisory board of Lufthansa and antitrust authorities. The acquisition is expected to be finalized during the first quarter of 2015. One of the company’s spokeswomen said in an interview for Reuters that a final price for the assets is still being negotiated.

Deutsche Lufthansa AG lost 0.04% to trade at €12.06 per share by 12:31 GMT, marking a one-year loss of 16.75%. The company is valued at €5.58 billion. According to the Financial Times, the 25 analysts offering 12-month price targets for Deutsche Lufthansa AG have a median target of €14.00, with a high estimate of €22.20 and a low estimate of €9.40. The median estimate represents a 16.04% increase from the last price of €12.07.

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