Print

Mail

wiki links

Delta spurns offer from US Airways for US$8bn buyout

Bankrupt carrier Delta Air Lines on Tuesday formally rejected a takeover bid from smaller rival US Airways, saying it intends to emerge from creditor protection on its own by the middle of next year.

The third-biggest US carrier said it had filed its reorganization plan with the US Bank-ruptcy Court overseeing its finances, and stressed its interests were better served by remaining independent.

Delta rejected the unsolicited US$8 billion offer lodged last month by US Airways, America's sixth biggest airline.

Delta said in a statement that its independent reorganization plan will provide "superior value, as well as a faster recovery and greater certainty of execution."

The Delta board said the US Airways bid "has an unacceptably high risk of not achieving antitrust clearance, because it would harm consumers and communities."

Additionally, Delta said the savings promised from US Airways "are premised on faulty economic assumptions," and that a merger would saddle the company "with a precariously high debt load."

"US Airways continues to experience significant integration problems and has not completed its prior, much smaller merger with America West," Delta said. "It is not equipped to simultaneously integrate a substantially larger company."

Reacting to the announcement, US Airways said it will continue to pursue the bid and will work with the court and creditors, including bondholders.

"We remain a disciplined and determined bidder for Delta," said Doug Parker, US Airways' chairman and chief executive in a statement, insisting "we recognize and appreciate the creditors' ultimate authority in this process."

Delta's reorganization document predicts a return to profitability next year, with net income increasing from US$500 million next year to about US$1.2 billion by 2010.

Delta said a valuation analysis prepared by its financial adviser, the Blackstone Group, estimates a consolidated equity value for the company of between US$9.4 billion and US$12 billion.

It said that as of September 30, it had reached 85 percent of its goal to cut US$3 billion from operating expenses by the end of next year.

Analysts offered a mixed assessment of the latest news.

"Delta's proposed reorganization plan involves less risk than US Airways' merger proposal in that it would not face antitrust review by the Department of Justice, would not involve potentially difficult labor integration, and would not require the issuance of US$4 billion in acquisition debt," said Standard & Poor's analyst Philip Baggaley.

"However, Delta's stand-alone plan foregoes potentially significant merger synergies and, like US Airways' acquisition forecast, rests on assumptions, some of which appear overly optimistic," he said.
This story has been viewed 1152 times.