Analysts say Us Airways bid is tempting

[GOTAFLY]

Analysts Say US Airways’ New Delta Bid Is Tempting

January 10, 2007, 2:57 pm

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After crunching the numbers on US Airways‘ latest bid for Delta Air Lines, several equity analysts said Wednesday that it seemed to present a better payout for creditors than Delta’s standalone reorganization plan. Their estimates were slightly different, but three of them calculated that US Airways was offering at least $2 billion more than Delta would be worth if it emerged from bankruptcy on its own. Their analysis suggests that US Airways’ new offer, consisting of $10.2 billion in cash and stock, may get serious consideration from Delta’s creditors.
“US Airways believes a merger with Delta can produce $1.65 billion of annual synergies, which, we think is doable,” Merrill Lynch’s Michael Linnenberg wrote in a research note Wednesday. He said a combination would produce a value of $12.7 billion to $15.4 billion, with a midpoint of $14.1 billion. That compares to a value of $10.7 billion, at the midpoint, under the Delta plan.
“While it is likely that a US Airways/Delta merger could take longer to close than Delta emerging from bankruptcy, one cannot ignore the magnitude of the cash component of the US Airways offer,” Mr. Linnenberg wrote.
Bear Stearns’ David Strine wrote that US Airways is offering $2 billion to $3.5 billion more for Delta’s creditors than they can expect under Delta’s plan.
Kevin Crissey of UBS said US Airways’ new offer is “significantly above” the value of Delta’s plan, “by at least $2 billion.” He also suggested that the raised bid could provide “political cover” for creditors who want to support a merger with US Airways but are leery of angering Delta’s management.
But money is not the only issue for the members of Delta’s official creditors committee, Mr. Crissey wrote:

The creditors’ committee has divergent interests and, among others, includes [the Air Line Pilots Association] (Delta’s pilots) that won’t be won over by a higher bid and Boeing which is likely more interested in future orders than a higher claims recovery.
​

A research note from Jamie Baker of J.P. Morgan did not directly compare the valuations of the two proposals, but it called US Airways’ new bid “attractive” and suggested that the ball is now in Delta’s court. “If Delta hopes to pursue its standalone plan, management must move quickly to resist sweetened terms,” the analyst wrote

 

[ils2minimums]

Analysts Say US Airways’ New Delta Bid Is Tempting

(tongue in cheek)

But there's WAY too much overlap and Oberstar, who's from Minnesota ya know, is against ANY merger which decreases competition!!!



Just messin' with ya General!

 

[General Lee]

Analysts Say US Airways’ New Delta Bid Is Tempting

January 10, 2007, After crunching the numbers on US Airways‘ latest bid for Delta Air Lines, several equity analysts said Wednesday that it seemed to present a better payout for creditors than Delta’s standalone reorganization plan. Their estimates were slightly different, but three of them calculated that US Airways was offering at least $2 billion more than Delta would be worth if it emerged from bankruptcy on its own. Their analysis suggests that US Airways’ new offer, consisting of $10.2 billion in cash and stock, may get serious consideration from Delta’s creditors.
“US Airways believes a merger with Delta can produce $1.65 billion of annual synergies, which, we think is doable,” Merrill Lynch’s Michael Linnenberg wrote in a research note Wednesday. He said a combination would produce a value of $12.7 billion to $15.4 billion, with a midpoint of $14.1 billion. That compares to a value of $10.7 billion, at the midpoint, under the Delta plan.
“While it is likely that a US Airways/Delta merger could take longer to close than Delta emerging from bankruptcy, one cannot ignore the magnitude of the cash component of the US Airways offer,” Mr. Linnenberg wrote.
Bear Stearns’ David Strine wrote that US Airways is offering $2 billion to $3.5 billion more for Delta’s creditors than they can expect under Delta’s plan.
Kevin Crissey of UBS said US Airways’ new offer is “significantly above” the value of Delta’s plan, “by at least $2 billion.” He also suggested that the raised bid could provide “political cover” for creditors who want to support a merger with US Airways but are leery of angering Delta’s management.




But money is not the only issue for the members of Delta’s official creditors committee, Mr. Crissey wrote:

The creditors’ committee has divergent interests and, among others, includes [the Air Line Pilots Association] (Delta’s pilots) that won’t be won over by a higher bid and Boeing which is likely more interested in future orders than a higher claims recovery.​

A research note from Jamie Baker of J.P. Morgan did not directly compare the valuations of the two proposals, but it called US Airways’ new bid “attractive” and suggested that the ball is now in Delta’s court. “If Delta hopes to pursue its standalone plan, management must move quickly to resist sweetened terms,” the analyst wrote

I agree with you Gotafly. But, Delta has other options---read this from Businessweek today:


Most of the creditors just want cash, and US Air is offering more of it."
Still, even if creditors like to see cash on the table, US Airways faces a daunting obstacle course in Washington, where the Justice Dept. would assess competitive issues posed by such a large airline and key politicians have made disapproving noises about the consequences for consumers.



Northwest to the Rescue?

For its part, Delta officials said that while it would consider Parker's latest bid—which consists of $5 billion in cash, and roughly 90 million US Airways shares—the Atlanta-based carrier noted the higher offer "would increase the debt burden of the combined company by yet another $1 billion," to the highest in the airline industry. In a conference call with analysts, Parker said the debt burden would still be manageable, given the greater revenues of a combined Delta-US Airways. "This company is a lot bigger, of course, it has more debt and it makes a lot more money," he said.
And analysts believe that Delta may have a hard time going it alone. "This paints Delta into a corner," says Robert Mann, a New York-based aviation consultant. "The US Airways offer is going to be extremely attractive to the creditors committee."
To avoid the clutches of US Airways, Delta likely will have to seek another carrier to serve as its white knight, experts believe. The most likely candidate: Northwest Airlines, which according to The Wall Street Journal, has been in "recurring" talks with Delta about a possible merger in coming weeks. While Delta declined to comment on the report, industry experts believe that a merger-of-equals with Northwest—which like Delta is in bankruptcy proceedings—could represent Delta's best hope for avoiding Parker's bear hug. "Delta's only option now is to go find a partner of its own," says Mann.

The two carriers would be a good fit. Privately, Delta CEO Gerald Grinstein had been warning creditors that a Delta-US Airways merger would likely spur the remaining major carriers to strike deals of their own (see BusinessWeek.com, 12/13/06,
With United Airlines (UAUA) viewed as the likely match for Continental Airlines (CAL), and American (AMR) likely to merge with Northwest, Grinstein has been arguing that a combined Delta-US Airways would be the weakest of those three partnerships given its weak presence in Asia (see BusinessWeek.com, 12/22/06, "Airline Mergers: Ready for Takeoff?")

By contrast, analysts believe that a Delta-Northwest combination would be far stronger: By matching Delta's strong European network with Northwest's powerful Asian routes, the combined carriers would potentially be more profitable than a combined Delta-US Airways. Vaughn Cordle, CEO and chief analyst of AirlineForecasts, a Washington (D.C.)-based consulting firm, estimates that a Delta-Northwest combination would have a fair market value approaching $12 billion—or $500 million higher than that of a combined Delta-US Airways. "A merger between Delta and Northwest makes the most sense," says Cordle. "It would produce more value than any other partnership out there, more than United-Delta, US Airways-Delta, or even United-Continental."

While Northwest officials declined to comment on the reports of a merger with Delta, Wall Street analysts say the Minnesota-based carrier signaled its willingness to partner up when it hired Evercore Partners (EVR) last December to explore "broad strategic alternatives" on its behalf. "Northwest would sell under the right terms," says Ray Neidl, an airline analyst for Calyon Securities in New York. "And strategically, Delta and Northwest are a good fit."
For one, analysts note that Northwest has an aging workforce that is poised to retire in coming years, making the task of cutting labor costs that much easier. "A lot of those Northwest workers are going to drop off the rolls," says Roger King, airline analyst for CreditSights, a New York-based institutional research firm. Delta management would also have a selfish reason for partnering with Northwest: It's likely that Delta executives would run the combined airline, and preserve its headquarters in Atlanta.



Maybe the new USAir offer is better than we can offer at a STAND ALONE DL, I don't know. But, Grinstein would rather bring in NWA before any US deal would go through. And, on top of that, the DOJ still will not take this lightly:


What's more, a potential merger between Delta and Northwest would have a great chance at receiving the necessary regulatory approval than would a Delta-US Airways deal. While Delta and US Airways compete head-to-head in many Eastern and Southeastern markets, there's far less overlap between Delta, whose strength is its Southeastern network, and Northwest, which has major hubs in Detroit, Minneapolis, and Memphis. That would mean fewer layoffs, and fewer of the cutbacks in service that would likely rile lawmakers in Washington.
By contrast, some industry insiders fear that a combination of Delta and US Airways would have a hard time passing muster with regulators. While US Airways officials remain confident that they would be able to divest enough assets to appease antitrust regulators—such as selling off one of the Washington-to-New York shuttle operations the two carriers run—some airline experts fret that a US Airways-Delta merger would give the combined carrier too much control over many second-tier markets like Charleston, S.C. "The Department of Justice will have a hard time approving this deal," says Michael Boyd, an aviation consultant based in Evergreen, Colo.

Already, some of the new Democratic leaders in Congress are voicing their opposition and threatening to derail the US Airways bid for Delta. "This proposal is ill-conceived and designed primarily for the benefit of US Airways," says Rep. James L. Oberstar (D-Minn.), the new chairman of the House Transportation Committee. "I think we can slow it down and eventually stop it." While that must be music to the ears of Delta executives, they still need a Plan B of their own. Which means that as much as Delta might loathe coupling with US Airways, it's still likely there's a merger in its future anyway.



Bye Bye--General Lee

 

[General Lee]

(tongue in cheek)

But there's WAY too much overlap and Oberstar, who's from Minnesota ya know, is against ANY merger which decreases competition!!!



Just messin' with ya General!

Just for you:


Already, some of the new Democratic leaders in Congress are voicing their opposition and threatening to derail the US Airways bid for Delta. "This proposal is ill-conceived and designed primarily for the benefit of US Airways," says Rep. James L. Oberstar (D-Minn.), the new chairman of the House Transportation Committee. "I think we can slow it down and eventually stop it."


Bye Bye--General Lee