Barron's: SWA could be leveraged buyout target

[lowecur]

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.

imp: ​

 

[Jim Smyth]

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......................

 

[HalinTexas]

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.

 

[Juvat]

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.

 

[G4G5]

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.

 

[scoreboard]

OK folks, nothing to see here, move along, move along...

 

[Mach 80]

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?

 

[Wingsweep]

So...

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

 

[tomgoodman]

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.

 

[Occam's Razor]

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.