SAS slashes value of Midland holding: Scandinavian write-down cuts valuation of Sir Michael Bishop's airline to pounds 62.5m

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SAS, the Scandinavian airline, has written down its shareholding in Sir Michael Bishop's British Midland by more than half, valuing the carrier and its parent company, Airlines of Britain Holdings, at just pounds 62.5m.

This compares with the pounds 166m valuation put on British Midland, the country's second-biggest scheduled airline, and the rest of the ABH group a year ago when SAS agreed to raise its holding to 40 per cent at a total cost of pounds 50m.

SAS, which is 50 per cent-owned by the governments of Sweden, Norway and Denmark, paid pounds 25m in December 1988 for an initial 25 per cent shareholding in ABH, valuing the group at pounds 100m.

In April 1992 SAS agreed to pay a further pounds 25m in stages to increase its stake to 40 per cent. At that price Sir Michael's remaining 58 per cent stake in ABH was valued at pounds 96m. The deal also gave SAS the right, subject to the agreement of Sir Michael and UK regulatory authorities, to raise its shareholding above 50 per cent.

However in SAS's 1992 report and accounts, published last week, the book value of its shareholding in ABH, which stands at 35 per cent, is shown as 242.8 million Swedish kronor - pounds 21.8m.

This represents a write-down of 8 per cent on the pounds 16.95m book value given to SAS's 25 per cent shareholding in its 1991 accounts but a write-down of 50.2 per cent compared with the price SAS will pay for its 40 per cent stake. SAS's latest accounts also show that it shared in a pounds 1.5m write-down of goodwill, leaving it with a net loss of pounds 1.25m on its 35 per cent stake in ABH.

When SAS raised its shareholding in ABH last year, it agreed to pay pounds 12m up front and a further pounds 13m provided the group hit certain profit targets in the following two years.

In the event ABH's profits slumped from pounds 2.1m in 1991 to pounds 834,000 last year. British Midland, which operates on six domestic trunk routes and Europe's five busiest short-haul international routes, saw profits fall from pounds 2.56m to pounds 833,000.

Sir Michael, who is also chairman of Channel 4 and the D'Oyly Carte Opera Trust, joined the airline in 1964 and bought control in the late 1970s.

His stake is held through BBW Partnership, a company formed with two other directors of ABH, of which Sir Michael owns 50.1 per cent.

SAS is due to make a further stage payment this July, taking its investment in ABH to pounds 45m. It will have paid the full pounds 50m and reached 40 per cent by July 1994.

Austin Reid, British Midland's managing director, said that SAS had taken a corporate decision to write down the value of its interests not just in ABH but a number of other affiliates including Continental of the US and the Chilean carrier LanChile.

'I'm not sure that the book value shown in SAS's accounts has any relevance for the true value of ABH,' he said. 'The fact is that SAS paid a high price for a strategic stake in ABH and one that is still valid as far as we are concerned.'

(Photograph omitted)

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