Virgin and bmi British Midland break off merger talks

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The Independent Online

Virgin Atlantic and bmi British Midland, the country's two biggest privately owned airlines, have broken off merger talks after they were unable to agree on valuations, it emerged yesterday.

Virgin Atlantic and bmi British Midland, the country's two biggest privately owned airlines, have broken off merger talks after they were unable to agree on valuations, it emerged yesterday.

The talks began three months ago and are understood to have ended about 10 days ago after bmi and its advisers decided that it did not have enough to gain from a merger.

The East Midlands-based bmi said in a statement: "Although the two companies regularly talk about a range of issues and have explored and continue to explore various forms of cooperation, there are no ongoing discussions in relation to a merger."

Sir Michael Bishop, who controls bmi, and Virgin Atlantic's chairman, Sir Richard Branson, are thought to have held very preliminary discussions in the early days of the talks but towards the end the negotiations were conducted by their two sets of advisers, Dresdner Kleinwort Wasserstein for bmi and CSFB for Virgin. Last night there were conflicting accounts of how the merger talks came about and how advanced they had been. The Virgin camp said the initial approach came from bmi and that talks reached an advanced stage although a price was never discussed.

But bmi insisted the first approach came from Virgin and that as the talks went on they became "increasingly desultory". A source in the bmi camp said: "The two sets of advisers were put together and whilst it became clear that there would be big advantages to Virgin, it became increasingly hard to see what the advantages would be for bmi. The weaknesses and vulnerability of Virgin's position made it difficult to see how a deal could be done."

Last year bmi lost £18m while Virgin Atlantic reported a £10m profit. The growth of low-cost rivals has hit bmi particularly hard, forcing it to launch its own no-frills airline, bmi baby. But the bmi camp maintained that it was by far the stronger of the two financially, with £100m of cash in the bank whereas Virgin had to have a £25m capital injection.

The two airlines are both based at Heathrow and already have a code-sharing agreement enabling passengers to switch from one carrier to the other with a single ticket. They also share some ground handling facilities.

But a merger could pose a formidable threat to British Airways by giving Virgin access to bmi's valuable runway slots at Heathrow and bmi access to Virgin's transatlantic routes - a market it has been desperate to break into.

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