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Barron's: SWA could be leveraged buyout target

  • Thread starter Thread starter lowecur
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lowecur

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In what I consider "fantasy of the year" from Barron's, they say SWA is trading at a discount compared to the rest of the industry, making it a prime target for a private equity leveraged buyout in a merger. :laugh: :laugh: :laugh: :laugh: :laugh:

"Yet the company's fundamentals remain impressive and will stand it in good stead regardless of the direction of oil prices or the economy, something that can't be said for the legacy carriers."

The company has many options to cover new cities across the U.S., Barron's said. Should opportunities to open new gates fail, Southwest plans to continue buying back its stock, the article said, citing an interview with the airline's chief executive Gary Kelly.

"If things go right for the industry, a Southwest stock price of 18, up 15%, is justifiable one year out, and 20, up another 11%, two years out," the article said. "With about $3 a share in cash and little debt, Southwest could even be a leveraged-buyout candidate in today's spirited M&A market."

Best laugh of the week.

:pimp:
 
With a 12.35 B market cap and they put in place over 10 years ago a poision pill its highly unlikely. But then again......................
 
You've got to remember. A lot of that stock is held by their own employees. Stock options, 401(k)'s. If managment tells them not to sell, they probably won't.

I don't think anyone will try it. They will forever be "upside-down" on it.
 
You've got to remember. A lot of that stock is held by their own employees. Stock options, 401(k)'s. If managment tells them not to sell, they probably won't.

I don't think anyone will try it. They will forever be "upside-down" on it.

Here is yet another reason to never take financial planning advice from a pilot.
 
What the article is bringing to light is the fact that AMR, CAL and UAUA stock are all very close to their 52 week highs and LUV stock is in the tank. If someone wanted to make a run at the best run airline in the business they easily could turn a huge profit.

People like Bonderman of Texas Pacific Group or Kravis of KKR easily have the wealth and the clout to get control of a company like LUV. Remember they are not trying to replace mgt or merge the carrier. All they are trying to do is run up the stock price. Did anyone notice what happened to GM stock when Kirk Kerkorian bought a huge chunk, Carl Ican does this all the time.

For an investment of $4-5 billion they could get a few seats on the board. With a market cap of $12-13 billion, they would only need to get control of 51% of the board. Plently of BOD members would hop on that band wagon with the chance to jump start the stock and make million.

That would give them controlling interest. They play hard ball, drive down the costs, run up the stock price and then sell. Just look at the history behind some of the names I mentioned, they do it all the time. What Barrons is saying is that with SWA current stock price this could happen to them.

Do I agree, no. SWA has great mgt and traditionally corporate raiders go after good companies with weak mgt, then they attack the BOD directly, toss out the current mgt and replace them with some of their internal cost cutting turn around experts. Run up the stock price and sell it to to a larger company. SWA mgt is some of the best in the business.
 
OK folks, nothing to see here, move along, move along...
 
As someone else mentioned, I always heard that SWA had a "poison pill" thing that would just about make it impossible for someone to do a leveraged buyout of SWA. Maybe the Barron's writer didn't know about it?
 
So...

So, what's a leveraged buy-out, equity, poison pill, stock option, and 401k? WS
 
Sharks in the water

If someone wanted to make a run at the best run airline in the business they easily could turn a huge profit....

People like Bonderman of Texas Pacific Group or Kravis of KKR easily have the wealth and the clout to get control of a company like LUV. Remember they are not trying to replace mgt or merge the carrier. All they are trying to do is run up the stock price.

Very true. A bid can be profitable without ever buying or operating the target airline. Frank Lorenzo got rich via his "attempted" takeover of National when Pan Am outbid him. Then he used the profit to ruin several other carriers, making even more money. :mad:
 
As someone else mentioned, I always heard that SWA had a "poison pill" thing that would just about make it impossible for someone to do a leveraged buyout of SWA. Maybe the Barron's writer didn't know about it?

If it exists, it typically consists of a clause that allows holders of a certain series of stock to convert them in reponse to a tender offer. Under a standard tender offer, the BOD approves a specific price for all shares. All shareholders (including employees) may sell their shares at that price by a cutoff date. If they choose not to...their shares become worthless.

The poision pill works by mulitpling the shares that must be tendered, which drives up the price of the deal. If all Series A, B, and C shareholders can convert 3-to-1, the cost of the buyout would triple. NWA has one, as does DAL and AMR. CAL does not. I don't know about SWA.
 
This would be a better use of parkers $8 billion than Delta. He who controls the prices, controls the market. A removal of SWA is much needed to control capacity expansion.
 
The supply of air travel would have gone down, but the gub-ment keeps spending tax payers' money to bail out private companies.
 
"Leveraged buyout" is when current mgmt (and possibly private investors) purchase the outstanding stock in order to take the company private.

"Hostile takeover" is when an outsider attemps to gain control of the company buy purchasing controlling stock.

In the event of a hostile takeover, SWA mgmt would have two choices:

1) Select a white knight ( friendlies with loads of money) to purchase the stock and retain current mgmt.

2) Mgmt could whine and cry about the poison pill until the stock hits whatever price it needed to in order for mgmt sell out.

A hostile takeover bid anytime soon is very unlikely. It does however make for good conversation and speculation.

Peace out Homies!
 
Heyas,

Leveraged buy outs are bad, bad news. Legal looting is what it is.

1) Talk your golf buddies into fronting you the cash.

2) Gain %50 +1 of the stock.

3) Fire management and entire BOD.

4) Sell off all assets of the company to a buddies "dummy" company, then lease back the assets for huge $$$ cut. Pay back golf buddies and pocket difference.

5) Draw whatever retirement plans there are down to the minimum. Purchase minimum annuities for employees and pocket the difference.

6) Claim that "hard times" are causing cash crunch, and force employees to take huge cuts. Pocket money.

7) Profit!

8)Repeat as necessary

Note, if stuck in a bidding war in step 2, run the stock up as high as possible to cripple the other bidder, then bail. Pay back golf buddies, and pocket the difference.

Any questions?

Nu
 
Typically, to get the attention of the big houses, you'll need to see a significant dip in the stock price resulting in a big decrease in market cap. With a low eps and a big dip in the stock price, then this scenario becomes more likely. However, that's the least of SWA's worries. The next couple of years will be fun to watch though, as there will be some significant consolidation resulting hopefully in a significant increase in fares.
 
In terms of a "poison pill", LUV used to have one, where in event of substantial change of control of the company (leveraged buyout, or corporate raid) the current stockholders got three additional shares for each share they owned, or something like that.

LUV did away with the poison pill probably five or six years ago, so now there is no protection.

I don't think LUV has a very large concentration of stock ownership in managment, so a leveraged buyout would be very difficult, usually these things happen with management's approval.

On the other hand, perhaps LUV's CEO would like to make a quick couple of hundred million and would buy on to taking the corp. private. From what I've read, it's pretty unlikely.
 

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