The air over Europe in these dog days of a dreary summer is thick with talk of real and imagined takeovers in the automotive, banking and energy sectors, among others. The fall-out from the credit crunch and the obvious risk of a full-scale recession notwithstanding, acquisition activity is on the up. There are at least three targets in aviation alone: Alitalia, Austrian and Iberia. Silvio Buffone, the Italian premier, re-elected partly on a promise to rescue the stricken national carrier, keep it in national hands and protect jobs, is behind a scheme involving a group of prominent business investors who would inject €1bn (£0.8bn) into Alitalia - on top of the €300m state aid being scrutinised by the European commission. Buffone helped ensure that the Air France-KLM offer to take over Alitalia by buying the state's 49.9% stake collapsed. Alitalia, which lost a further €215m in the first quarter, is saddled with net debt of €1.1bn, an ageing fleet of aircraft, stroppy unions and creditors. The latest rescue plan, known as Piano Fenice, would enable the prominent Italian business investors to take it over and merge it with AirOne after it was broken up and its loss-making activities put into state administration (bankruptcy). This ludicrous national champion would then invite outside help from other European airlines in return for a stake. Inevitably, it is Germany's Lufthansa - which kept well away from the first rescue attempt by AF-KLM - that is seen as the most viable saviour. But the airline, which has already swallowed Swiss, is now trying to take over loss-making Austrian by buying the state holding's 43% and is committed to buying out BMI. A handful of other airlines, including AF-KLM, have signalled their own interest to Austrian's advisers, Merrill Lynch. Even so, Lufthansa is said to be interested in taking up to 25% of New Alitalia. Separately, British Airways, which this month launched a transatlantic flights joint venture with American Airlines and Iberia, is in pole position to conclude a full-scale merger/takeover with Spain's national carrier. The prospect, long dangled before us, of Europe's three biggest airlines - AF-KLM, LH and BA - emerging as a trio of sole European champions of aviation outside the low-cost segment is gradually moving closer. Spanish power struggles The Spanish property slump, meanwhile, has enabled Gas Natural to mount its €17bn bid for Union Fenosa, the country's third largest power producer. The bid, launched late last month, was effectively secured earlier this month when a savings bank, CAM, hit by the housing crisis, agreed to sell its 5.15% stake in Fenosa to Gas Nat. Barcelona-based Gas Nat, a losing bidder in recent years for both of Spain's other two big utilities, Iberdrola and Endesa, is paying CAM €18.33 a share to take its agreed holding in Fenosa to above 50%. It's the same price it is paying to troubled construction group ACS for its 45% holding in Fenosa - and is committed to paying to other shareholders. These are irrevocable commitments. As Merrill Lynch said in a recent note, there is no reason why the bid should not succeed, not least because the commitments make any counter bid impossible. Under Spanish takeover law, Gas Nat, which has already acquired 9.99% of Fenosa, must launch a full takeover when its holding rises above 30% - as it will when it has secured the approval of competition authorities to acquire ACS's remaining 35.3% stake. Merrill's analysts see no regulatory obstacle to the bid succeeding. Gas Nat's victory would be a considerable coup for the Zapatero government, which fought tooth and nail to prevent Endesa being gobbled up by Germany's E.On and was rapped repeatedly over the knuckles by the European Union competition commissioner, Neelie Kroes, in the process. Spain will have three national champions in the power sector, although Italy's Enel has the biggest shareholding (but not outright control) of Endesa and its much-criticised takeover law will be intact. Germany motors ahead In Germany, the success of Schaeffler's audacious €12bn bid for car parts and tyre maker Continental has brought swollen rumours of other potential targets in the DAX-30 top companies. If a family-owned firm can buy a bigger listed group - OK, Schaeffler has agreed to limit its holding to 49.99% at most for four years - who's next to fall? The cause of the takeover fever is a loophole in Germany's takeover law, recently amended to deal with acting-in-concert issues. At virtually the same time as the government proposed new draft legislation to hand the cabinet a veto over foreign takeovers, notably by sovereign wealth funds, the market regulator BaFin approved the cash-settled equity swaps Schaeffler used to win control of Continental. With relative small fry and family-owned Porsche poised to win majority control of Volkswagen, Europe's biggest car-maker, through similar instruments, lawyers such as Robert Heym of Reed Smith see two precedents for successful takeovers without informing the capital markets and paying a hefty premium. So, next in the line of fire could be, analysts say, Daimler, which owns Mercedes-Benz, or BASF, the chemicals group. Both have a huge free float of shareholders - and sagging share prices. The government, frightened that a foreign predator could use swaps to win control of these or other groups, may well be forced to close the loophole. Ironically, in the case of Daimler, it may well rely on other means: the car maker's biggest shareholder is the Kuwaiti Investment Authority with 7.6%. KIA, a Daimler investor for more than 20 years, happens to be a sovereign wealth fund. The lesson of Alcatel-Lucent Many takeovers and mergers, of course, destroy value. A classic modern example is Alcatel-Lucent, the Franco-American telecoms equipment group worth €25bn when it was forged almost two years ago. Its now worth €9bn at most and has shed 16,500 jobs as it struggles to overcome substantial losses. This week, the unrepentant chairman, Serge Tchuruk, dismissed along with the chief executive, Pat Russo, in late July, gave an interview to Le Figaro in which he defended the strategy "that has made Alcatel-Lucent a big global leader in information technologies". At most Tchuruk admitted he might have underestimated the cultural difficulties in bringing the two groups together. However, expressing a sense of pride, he said: "This difficult period is behind us now" and "we have solid attributes". It's somehow reminiscent of George Simpson at GEC, an old Alcatel partner, a few years ago.
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