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. Last Updated: 07/27/2016

Lufthansa Closes In on Swiss

ZURICH -- Swiss International Air Lines is hoping for a swift conclusion to takeover talks with Germany's Lufthansa, it said on Monday, as shares in the loss-making Swiss carrier rose as much as 12 percent.

The airlines confirmed on Sunday that they were in negotiations over a deal in which Lufthansa would make an offer to buy out Swiss' small shareholders, who account for around 14 percent of its capital, if larger shareholders agree. A spokesman for Swiss declined to comment further on the negotiations with Lufthansa on Monday but said that plans for cost cuts and severe job reductions announced in January would go ahead regardless of the takeover.

"Basically, the turnaround program announced in January will go ahead in any case," he said. "We want to conclude the negotiations with Lufthansa as quickly as possible."

Although timing remains unclear, an offer would be based on the average share price of recent weeks. A source close to the negotiations said this could translate into about 50 to 60 million euros ($67 million to $80 million) for the shares in free float, with major shareholders receiving only a token amount.

Swiss was 6 percent higher at 11.00 francs ($10.60) in early trading after touching 12.30 francs, while Lufthansa stock was 1.4 percent higher at 11.33 euros.

Swiss' volatile shares surged by around one-fifth on Friday amid talk that Lufthansa was set to pounce on its Swiss rival, which has yet to make an annual profit since it emerged from the ashes of Swissair less than four years ago.

"The acquisition would make sense. Lufthansa has said explicitly in the past that it would only buy Swiss if there were synergies, and that it would never buy Swiss if the price was not right," analyst Per-Ola Hellgren of LRP said.

"This time it will work out," Hellgren said, adding that the acquisition of Swiss would only slightly burden Lufthansa earnings this year and contribute a few cents to earnings per share in 2006 or 2007. Nick van den Brul, analyst at ExaneBNP Paribas, said it seemed a good deal for both airlines, and that Swiss's recent measures to shed short-haul routes and concentrate on long-haul was consistent with Lufthansa's moves.

"It is cheap at the proposed price, although of course it has not been agreed," he said.

While Lufthansa said Swiss would continue to fly independently under its own brand and keep its hub at Zurich airport, the deal is likely to be a further blow to Swiss' pride.

According to the source close to negotiations, Lufthansa has dropped original demands that major shareholders, including the Swiss government with a 20 percent stake and banks UBS and Credit Suisse, stump up fresh cash before any takeover. But Swiss will still have to implement controversial cost cuts that could mean the loss of 800 to 1,000 jobs with the aim of saving about 300 million francs ($260 million) in costs.