Europe's Competition Commissioner Nellie Kroes has conditionally approved Lufthansa's proposed acquisition of Austrian.

The tentative approval follows a series of negotiations between the EC and Lufthansa that resulted in a concessionary package from the German carrier. These concessions reportedly include the relinquishing of several frequencies from Austrian's Vienna hub to Frankfurt, Munich and Brussels, as well as a divestment of Austrian's holding in slot handling agency Schedule Coordination Austria.

These remedies, which were offered last week, had to be "market tested" by the European Commission before the takeover could proceed. A previous proposal by Lufthansa had been dismissed by the EC, a decision that had pushed the acquisition's planned deadline past a July 31 completion date to the end of August.

"After talks earlier today about the results of this week's market test, Lufthansa has put forward further improved remedies to address the competition concerns raised in this case. Following this, Commissioner Kroes has instructed her services to draft a conditional clearance decision," said the commission in a July 31 statement.

"The draft decision will be submitted to the Advisory Committee of the Member States and a final proposal will be presented, for adoption, to the College of Commissioners as soon as possible," it added.

Kroes' decision tentatively approves a 500 million euro (US$713 million) loan issued by the Austrian government, as well as the antitrust immunity required to proceed with the takeover.

Lufthansa Chairman and CEO Wolfgang Mayrhuber in a release applauded the commissioner's decision. "We welcome the positive signals we have received from Brussels and are counting on formal approval soon of the merger with Austrian Airlines," he said.

"In taking this course, the EU Commission underlines its strategy to give the European airline industry a chance to persist amid global competition. Also, a market the size of Austria can keep its international connections. The strategy thereby ensures competition which has risen steeply and steadily since deregulation and liberalization of the market."

The German company noted that "with the formal go-ahead from the EU Commission for the merger and approval of a partial relief of Austrian Airlines by the extended deadline, all the necessary prerequisites for the tie-up between Austrian Airlines and Lufthansa would be met. The approval of the partial relief of Austrian Airlines' total indebtedness of 500 million euros?has to be granted under economically acceptable conditions for Lufthansa."

If the takeover gains full EC approval, Lufthansa plans to pay 4.49 euros a share to the 88% of shareholders that have accepted the company's takeover bid. This will be paid within 10 days of formal approval.

Lufthansa also intends to acquire the remaining 12%.

"For all shareholders of Austrian Airlines who have not yet accepted the offer, the acceptance period has been prolonged following the extension of the deadline for the takeover offer. Instead of Aug. 14, 2009, these shareholders can now sell their shares up to eight days after publication of the fulfillment of the conditions of the takeover bid concomitant with the EU formal approval," the company said in its release.

"These shareholders will receive the takeover price no later than 10 trading days after the expiry of the extended period for selling their stock. Upon completion of the public takeover offer, Lufthansa will seek through a squeeze-out to acquire the stock of the remaining shareholders of Austrian Airlines in order to take over the company completely," it added.

"The merger of the two airlines is in the interests of all stakeholders," noted Mayrhuber. "Customers will have continued access to a dense network with attractive connections. The international importance of Vienna as a business center will be secured in the long term by cooperation with Lufthansa as the partner of Austrian Airlines. Eastern Europe will also retain important connections through the Vienna hub, which are of major significance for the economic development of this region. Under the terms of the public takeover offer, the shareholders will receive a very good price for their shares. The staff of Austrian Airlines has the chance to secure employment and therefore create perspectives for the future."