US Airways ups offer for Delta
By ASSOCIATED PRESS
Published January 11, 2007
ATLANTA - US Airways increased the pressure on Delta Air Lines' unsecured creditors to take its buyout offer by raising the bid Wednesday nearly 20 percent to $10.3-billion. Whether the deal would survive regulatory scrutiny may be the deciding factor.
The Tempe, Ariz.-based company also set a Feb. 1 deadline for certain conditions to be met or its entire bid would be revoked.
The ball is now in the creditors' court.
The question is whether they want to take the money US Airways is offering and run the risk of a long regulatory fight, or stick with Delta's plan to emerge from bankruptcy by the middle of this year as a standalone company worth $9.4-billion to $12-billion.
Daniel Golden, a lawyer for Delta's unsecured creditors committee, did not return several phone calls Wednesday seeking comment. Most of the large creditors on the committee have refused to discuss their position publicly, except Delta's pilots union, which opposes the merger.
Delta management has argued that the combination of US Airways and Delta would not receive regulatory approval because of the overlap of the two carriers' routes. US Airways says there wouldn't be any regulatory holdup.
Delta and US Airways are Tampa International Airport's second- and third-ranked airlines. Combined, they carry 25 percent of the airport's passengers, which would put them slightly behind No. 1-ranked Southwest, with 25.7 percent in 2006.
A Jan. 24 hearing has been scheduled by the Senate Committee on Commerce, Science and Transportation on the state of the airline industry and the potential impact of airline mergers.
Ray Neidl, an airline analyst with Calyon Securities in New York, said the increased offer will be more attractive to Delta's creditors, but the great unknown is whether regulators would approve the deal.
"In my opinion, that's going to be the main thing," Neidl said, adding that he gives the US Airways bid a 50-50 chance of being successful.
US Airways Group Inc. Chief Executive Doug Parker told analysts Wednesday there's an easy way to know who is right on the regulatory issues.
"Let's just go ask them and find out," Parker said of regulators. Parker was in Washington on Wednesday to talk to lawmakers.
Delta Air Lines Inc. said in a statement Wednesday that its board will do its duty to review the revised offer by US Airways. But, the Atlanta-based airline added, "On its face, the revised proposal does not address significant concerns that have been raised about the initial US Airways proposal and, in fact, would increase the debt burden of the combined company by yet another $1-billion."
Added Kelly Collins, a spokeswoman for Delta's pilots union, "We remain entirely committed to defending our airline from this hostile merger attempt."
US Airways said it would raise its offer by $1.7-billion from its Nov. 15 bid that was currently valued at $8.6-billion.
The decision to increase the offer was reached over the weekend after US Airways officials met to discuss it. On Monday, the carrier's executives met with Gordon Bethune, the former Continental Airlines chief who is working as a consultant to Delta's creditors committee.
US Airways shares rose $1.03, or 1.8 percent, to close at $58.93 in trading Wednesday on the New York Stock Exchange, boosting the value of the revised offer.
US Airways said the increased offer is set to expire on Feb. 1 unless creditors indicate support for the start of the due diligence process, which would open up Delta's books to US Airways. US Airways also wants support by the creditors for postponing a Feb. 7 bankruptcy hearing involving Delta's reorganization plan.
The increased bid includes 89.5-million shares of US Airways stock and $5-billion in cash. The original offer included 78.5-million shares of US Airways stock and $4-billion in cash.
Based on the Delta's valuation method, US Airways estimated that its increased bid could actually be worth $12.7-billion to $15.4-billion.
Delta's unsecured creditors committee, which will play a key role in deciding the airline's future course, had said prior to Wednesday that it was reviewing both Delta's standalone plan and US Airways' buyout offer.
About USAirways' offer to buy Delta
How much: $10.3-billion, up $1.7-billion from its Nov. 15 bid.
Deadline: Feb. 1, unless Delta creditors indicate support that would open Delta's books to USAirways
Possible obstacle: Delta management argues that the merger would not receive regulatory approval because of the overlap of the two carriers' routes. USAirways does not believe that to be the case.
About the airlines: Delta and US Airways are Tampa International Airport's second- and third-ranked airlines. Combined, they carry 25 percent of the airport's passengers, slightly behind No. 1-ranked Southwest.