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. Last Updated: 07/27/2016

Aeroflot Ditches Bid to Buy Alitalia

Aeroflot pulled out of the bidding for struggling Italian airline Alitalia on Wednesday, citing a lack of access to vital information and conditions attached to the sale.

Alitalia's shares dropped 7 percent on the news, while Aeroflot's leapt nearly 6 percent.

A lack of "critical information ... [on] the commercial and operational aspects of Alitalia's business" and the sale's "conditions and demands would significantly limit" Aeroflot's ability to restructure the airline, the Russian airline said in a statement.

Yelena Zotova, an Aeroflot spokeswoman, refused to elaborate on what information Aeroflot had been denied and what the conditions were.

She said that excessive demands had come from the Italian government, which is looking to sell off its 49.9 percent stake in Alitalia.

Aeroflot has previously expressed frustration with the Italian government over what it perceived as attempts to get the highest price rather than the best restructuring plan for the airline.

In early April, Aeroflot announced it was teaming up with Italy's UniCredit bank to bid for the Italian government's stake in the airline. Alitalia is currently valued at about 1.1 billion euros ($1.5 billion).

Aeroflot board member Leonid Dushatin welcomed the withdrawal, saying that the Italian government had conducted the sell-off "like a monetary auction."

"We wanted to buy Alitalia, but, as we said before, we were not willing to pay any sum for it," Zotova said.

A statement from UniCredit on Wednesday confirmed the withdrawal "following a thorough and detailed due diligence and a review of the terms and conditions of the proposed privatization. ... The Italian Treasury has been duly informed accordingly."

Zotova insisted that the decision had been a joint one by the two partners.

However, a source close to the bid said that the impetus for the decision had come from the Aeroflot board, with UniCredit acting in more of an advisory capacity.

Aeroflot shares initially jumped by up to 5.8 percent on the news to 2.9 rubles, while shares of Alitalia tumbled 7 percent to 76 euro cents.

Aeroflot's withdrawal leaves two remaining bidders in the frame.

U.S. private equity firm MatlinPatterson reentered the bidding last Thursday, nearly a month after a consortium led by TPG, of which MatlinPatterson had been a member, withdrew its bid.

The other remaining bidder is Air One, a smaller Italian airline, owned by Carlo Toto.

Aeroflot said Saturday that it had previously turned down the opportunity to create a joint bid with Air One.

The Italian Finance Ministry recently extended the deadline for bids by 10 days to July 12.

While Zotova suggested that Aeroflot's decision was final, when pressed she was unable to rule out definitively that Aeroflot would bid for Alitalia again. "There is no point talking about whether we would bid again for Alitalia on the day we announce we are withdrawing from the competition, but you cannot say what will happen in the future," she said.

Aeroflot's decision comes after a week of concerted speculation that it was about to drop out. Last week First Deputy Prime Minister Dmitry Medvedev said in Rome that he backed Aeroflot's bid but that any deal had to be for the right commercial reasons.

Critics of Aeroflot's management, including Alexander Lebedev, the majority owner of National Reserve Corporation, which owns 30 percent of the airline, have repeatedly attacked the perceived politicization of the company's decision-making process.

However, Zotova denied that the deal had been subject to political interference. "We are a serious commercial company and the decision to withdraw was not a political one," she said.

Dushatin, who is an official at Lebedev's National Reserve Corporation, said that Aeroflot was known to be looking to expand into Europe.

Andrei Nikitin, an aviation analyst at UralSib, agreed that the withdrawal was probably made for commercial rather than political reasons. With forecasts suggesting that Alitalia is set to lose 380 million euros in 2007 and powerful Italy's union movement, the logic was understandable, Nikitin said.