DAL value up to $12B

[FDJ2]

Delta seen putting its value up to $12B

Airline looking to to fend off hostile $8.4 billion US Airways bid in filing with bankruptcy court.

December 18 2006: 7:50 AM EST
NEW YORK (CNNMoney.com) -- Trying to fend off a hostile bid from US Airways Group, Delta Air Lines is close to presenting a reorganization plan to the bankruptcy court that will estimate its value as an independent company at between $10 billion to $12 billion, according to a published report.
The Wall Street Journal reports that the plan could be presented to the court as soon as Tuesday. US Airways offered stock and cash for Delta on Nov. 15 that would be worth $8.4 billion, based upon Friday's closing price.
The Delta (Charts) reorganization plan would lower the range for the estimated market value of the Atlanta-based carrier after emerging from bankruptcy, down from the $12 billion to $14 billion range the airline was calculating a few weeks ago, according to the report.
Still, the paper says Delta management hopes creditors would prefer a plan that values the airline at more than US Airways' offer, and that would lead to an airline with an estimated $10 billion in debt versus $22 billion under the merger scenario envisioned in the US Airways (Charts) bid, according to the report.
Delta management has repeatedly stated its intention to emerge from bankruptcy as an independent airline. But it has yet to formally reject the US Air offer. The paper reports that it will do so as soon the reorganization plan is filed in U.S. Bankruptcy Court in New York.
One person familiar with the matter said Delta's plan won't offer as much cash as the $4 billion in the US Airways offer and instead will depend upon equity in Delta for the majority of its value to creditors.
US Air officials insist their offer is more attractive to Delta creditors due to what it estimates are $1.65 billion in annual cost savings and increased revenue opportunities from a combined carrier.
The bid from US Air for Delta set off speculation that it could bring a round of mergers in the industry. Last week there were reports that United Airlines parent UAL Corp. (Charts) was in preliminary talks with Continental Airlines (Charts) on a potential merger. And even smaller carriers could get involved, as AirTran (Charts) announced an unsolicited bid for Midwest Express (Charts).

 

[G4G5]

$12 billion my be a bit optimistic when you consider the fact that the combined market cap of the big 3 legacies equates to around $15 billion
Based on todays numbers:
AMR $6.8
CAL $ 4.0
UAUA $ 4.9
So for slightly over $15 billion you can own all of the big 3 or for $12 you can own Delta, hummm........ Greenjeans expects people to go for this?

By offering $8 billion for Delta, Parker is valuing the company at twice what CAL is currently trading for.

Who do you think is more realistic?

 

[FDJ2]

$12 billion my be a bit optimistic when you consider the fact that the combined market cap of the big 3 legacies equates to around $15 billion
Based on todays numbers:
AMR $6.8
CAL $ 4.0
UAUA $ 4.9
So for slightly over $15 billion you can own all of the big 3 or for $12 you can own Delta, hummm........ Greenjeans expects people to go for this?

By offering $8 billion for Delta, Parker is valuing the company at twice what CAL is currently trading for.

Who do you think is more realistic?

You are confusing market cap with the actual value of the company.

 

[G4G5]

No I am not, I guess my point was not clear. Market Cap, is a snap shot of the present value of a company (stock price x number of shares).

CAL's present market cap is $4 billion. Greenjeans is trying to tell us that today's Delta is VALUED 3x what CAL's current market cap is WORTH. And he expects people to buy this?

Parker's current offer places Delta's VALUE at twice what CAL is currently WORTH. Greenjeans places it at 3 times. Who do you think is more realistic?

Most folks on Wall Street would be happy to get 2x what CAL is currently worth for a bankrupt carrier. I don't recall too many articles stating that USAir isn't offering a fair price. If that was the case then one of the corporate raiders like Texas Pacific or KKR would come in and snap up DAL and sell off the assets, that clearly isn't the case.

What I was saying is, when you place DAL at $12 billion you are trying to tell everyone that a bankrupt Delta is VALUING itself at nearly the same price that all of the big 3 legacies are currently WORTH.

Greenjeans is out to lunch, if he thinks anyone is going to buy DAL's value at $12 billion.

 

[rjcap]

The Wall Street Journal reports that the plan could be presented to the court as soon as Tuesday. US Airways offered stock and cash for Delta on Nov. 15 that would be worth $8.4 billion, based upon Friday's closing price.
The Delta (Charts) reorganization plan would lower the range for the estimated market value of the Atlanta-based carrier after emerging from bankruptcy, down from the $12 billion to $14 billion range the airline was calculating a few weeks ago, according to the report.


Translation - Sweeten the pot and its a done deal.

 

[G4G5]

Exactly,
What he is saying, I am willing to sell Delta to you for $12-14 billion. For that price is he willing to throw in the Brooklyn bridge? Parker is not that stupid.

 

[FDJ2]

No I am not, I guess my point was not clear. Market Cap, is a snap shot of the present value of a company (stock price x number of shares).

http://www.streetauthority.com/terms/m/market-cap.asp
Market Capitalization
What It Is:
Market capitalization refers to the value of a company's outstanding shares. The formula for market capitalization is:

Market Capitalization = Current Stock Price x Shares Outstanding

It is important to note that market cap is not the same as equity value, nor is it equal to a company's debt plus its shareholders' equity (although that is sometimes referred to as simply the company's capitalization).

How It Works/Example:
Let's assume Company XYZ has 10,000,000 shares outstanding and the current share price is $9. Based on this information and the formula above, we can calculate that Company XYZ's market capitalization is 10,000,000 x $9 = $90 million.

Why It Matters:
Market capitalization reflects the theoretical cost of buying all of a company's shares, but usually is not what the company could be purchased for in a normal merger transaction.

Thus market capitalization is a better measure of size than worth. That is, market capitalization is not the same as market value, which can generally only be assigned when the company is actually sold.

 

[G4G5]

"What It Is:
Market capitalization refers to the value of a company's outstanding shares. The formula for market capitalization is:

Market Capitalization = Current Stock Price x Shares Outstanding"


Isn't that exactly what I said?

The only way to compare apples to apples is to use market cap because the stock price builds things like future earnings or future losses into it's price. It places a current dollar value on any give company.

Do you have something better then using market cap when comparing airlines?

Didn't think so.

The problem is Delta currently has no market cap. Does that mean the companies worthless. No. but since you are so into definations look up Bankrupt (Current assets are not worth current liabilities) So yes, Delta is worth something but $14 billion? Please.

Greenjeans is trying to tell us that Delta is worth $12-14 billion. He's pulling the number out of thin air. What he trying to tell us is he values present day Delta at roughly the market cap of all of the big 3 legacies COMBINED.

What's he smoking. If he was to come out of Ch11 and do everything possible he couldn't get the market above $6 billion (see current UAUA).

So an offer of $8.4 billion is very realistic, an offer of $14 is nuts.

 

[FDJ2]

So an offer of $8.4 billion is very realistic, an offer of $14 is nuts.

Market capitalization reflects the theoretical cost of buying all of a company's shares, but usually is not what the company could be purchased for in a normal merger transaction.

Parker will have to do much better if he wants to buy DAL.
It really doesn't matter, because Parker will ultimately fail in his quest to purchase DAL.

No need for us to argue DAL's value or market cap, because the market will determine it soon enough.

 

[FDJ2]

Delta valuation rises above US Airways' bid
Mon Dec 18, 2006 8:53 AM ET



By Chris Reiter
NEW YORK, Dec 18 (Reuters) - Bond investors are betting that bankrupt Delta Air Lines Inc. <DALRQ.PK> is worth more than the offer made by US Airways Group Inc. <LCC.N>.
Delta's bonds traded at around 67 cents on the dollar on Friday, traders said. With a claims pool estimated to be between $14 billion and $16 billion, current bond prices imply a valuation for the No. 3 U.S. carrier of $9.4 billion to $10.7 billion.
Even at the low end, it's higher than US Airways' cash-and-stock bid currently valued at around $8.4 billion and suggests investors are anticipating a sweeter offer.
At least one alternative for creditors is in the works: Delta's stand-alone plan.
"It would be hard for Delta's management to make a case if they can't suggest a higher valuation," said Philip Baggaley, airlines analyst with credit rating agency Standard & Poor's.
Delta, as expected, intends to present a stand-alone plan that values it higher than the US Airways' offer. Citing people familiar with the matter, the Wall Street Journal on Monday reported that Delta's plan, which could be filed as early as Tuesday, values the company at $10 billion to $12 billion.
The Atlanta-based airline has repeatedly said it intends to emerge from bankruptcy as an independent carrier. The company has also said it will submit the plan to creditors by mid-December.
Delta's plan, which will likely be more reliant on equity than cash, will establish a new mark that could force US Airways to raise its bid or encourage another airline to enter the fray.
"Management has the burden of demonstrating that there is more value in a stand-alone emergence than that of a US Air or competing bid for Delta," said one Delta bond holder.
Given Delta's resistance to US Airways' offer, the No. 7 U.S. carrier needs creditors to pressure Delta into opening its books in order to allow US Airways to perform due diligence, a condition of its offer.
But Delta's official creditors' committee is likely to sit tight until they have a chance to review Delta's stand-alone plan and any competing bids that may follow.
The committee - a key group in the airline's future - hasn't taken a position since US Airways made its proposal on Nov. 15. (Additional reporting by Jennifer Ablan, Walden Siew, and Paritosh Bansal)

 

[General Lee]

The Wall Street Journal reports that the plan could be presented to the court as soon as Tuesday. US Airways offered stock and cash for Delta on Nov. 15 that would be worth $8.4 billion, based upon Friday's closing price.
The Delta (Charts) reorganization plan would lower the range for the estimated market value of the Atlanta-based carrier after emerging from bankruptcy, down from the $12 billion to $14 billion range the airline was calculating a few weeks ago, according to the report.


Translation - Sweeten the pot and its a done deal.

And it is a done deal? Riiight. That would wipe out the $1.2 billion in savings Parker guessed at during his first try. Synergies.....Synergies....keep saying it Doug. The DOJ wouldn't agree to it anyway. NWA may come in though and try, since that combined route network could work.

Bye Bye--General Lee

 

[G4G5]

Raiders like Bonderman's Texas Pacific group have been buying and selling airlines for years. He knows when an airline is undervalued (like when he purchased CAL). Someone like him (or KKR or whomever) has more then enough cash to step forward and buy Delta. Look at what Texas Pacific Group did last week, an $8.6 billion dollar purchase of Qantas.

Don't hang your hat on current bond prices. Bond traders are nothing more then commodities brokers, they hedge it one way or another. Good luck actually getting it. By the virtue of the fact that NO ONE else has come forward to match or bid on Delta has to tell you that Parkers $8.4 billion price is more then fair.

 

[General Lee]

Regardless, the DOJ will turn it down due to Anti-trust. The route maps overlap. Can't get around that. Next.....

Bye Bye--General Lee

 

[FDJ2]

By the virtue of the fact that NO ONE else has come forward to match or bid on Delta has to tell you that Parkers $8.4 billion price is more then fair.

Not really. You assume that every offer is made public and that others believe purchasing DAL for upwards of $10B fits in nicely with their business plan.

Hostile takeovers are difficult to put together, even in BK. The most likely scenario is DAL will emerge as a stand alone carrier with a maeket value of between $10B and $12B.

 

[FDJ2]

What's he smoking. If he was to come out of Ch11 and do everything possible he couldn't get the market above $6 billion (see current UAUA).

So an offer of $8.4 billion is very realistic, an offer of $14 is nuts.

Bond investors are betting that bankrupt Delta Air Lines Inc. is worth more than the offer made by US Airways Group Inc.
Delta's bonds traded at around 67 cents on the dollar on Friday, traders said. With a claims pool estimated to be between $14 billion and $16 billion, current bond prices imply a valuation for the No. 3 U.S. carrier of $9.4 billion to $10.7 billion.

 

[slaquer5]

Regardless, the DOJ will turn it down due to Anti-trust. The route maps overlap. Can't get around that. Next.....

Bye Bye--General Lee

We can fix that. We wil buy the overlap and make it work. Herb is very good at making the DOJ happy.

 

[crjdxr]

We can fix that. We wil buy the overlap and make it work. Herb is very good at making the DOJ happy.

Bingo.

 

[On Your Six]

We can fix that. We wil buy the overlap and make it work. Herb is very good at making the DOJ happy.

Again, how often do hostile takeovers that require job cuts (if SWA or someone else takes the routes/gates) in service businesses succeed? How about... never. This deal won't happen. Didn't Parker say no significant job cuts would be necessary? So, pay down $12 billion in debt with no major job cuts? Doubt it.

 

[slaquer5]

Didn't Parker say no significant job cuts would be necessary? So, pay down $12 billion in debt with no major job cuts? Doubt it.

Are you for real ? Parker will say what they want to hear, then blame everyone else for the cuts. Doug will do very well for Doug.

 

[BobbyB]

Regardless, the DOJ will turn it down due to Anti-trust. The route maps overlap. Can't get around that. Next.....

Bye Bye--General Lee

Combined market share is the biggest indicator of what the DOJ will do. They don't usually care unless it tops 25% and the Delta/US Airways deal would be something like 18%. Not a big anti-trust issue. A few routes, maybe, but a deal breaker, probably not.

 

[Wiskey Driver]

People, just state the obvious!! We are all in the wrong line of work. I am working towards being executive management from now on, at least this way if I lose my job I get a few million in parting money...

WD.

 

[General Lee]

We can fix that. We wil buy the overlap and make it work. Herb is very good at making the DOJ happy.

Riiiiiight. I bet you will fly to Florence, SC, Huntington, WV, Lynchburg, VA, and other beautiful East Coast small towns. Riiiight. It won't happen.


Bye Bye--General Lee

 

[General Lee]

Combined market share is the biggest indicator of what the DOJ will do. They don't usually care unless it tops 25% and the Delta/US Airways deal would be something like 18%. Not a big anti-trust issue. A few routes, maybe, but a deal breaker, probably not.

Are you kidding me? The US/UAL deal fell through for one area--DCA/IAD. USAir/DL has a few areas (LAS/PHX/SLC) (PHL/CVG/PIT/JFK/Shuttles) (ATL and CLT only 220 nm apart) Yeaj, only 18%.......Just like Parker said we only fly 10 routes on top of each other. Well, CLT and ATL fly to the EXACT same cities all over the SE and East, yet they are only 200 nm apart. Do you really think both hubs will stay open? You do? That overlap is tremendous. You are wrong.


Bye Bye--General Lee

 

[General Lee]

You need to read this article

Combined market share is the biggest indicator of what the DOJ will do. They don't usually care unless it tops 25% and the Delta/US Airways deal would be something like 18%. Not a big anti-trust issue. A few routes, maybe, but a deal breaker, probably not.

Posted on Thu, Dec. 14, 2006
Proposed air mergers spur examination by Congress

Marilyn Geewax
Cox News Service

WASHINGTON – Even though the new Congress won’t convene until January, key lawmakers already are preparing for hearings to examine the economic impact of possible airline mergers, some of which involved carriers that serve the airport in San Luis Obispo.
Many members of Congress are condemning the potential deals, while few if any are supporting the idea of industry consolidation. Congress has no direct role to play in approving mergers, but it could help sway public perceptions and increase political pressure on the Justice Department to reject the airline transactions on antitrust grounds.
Perhaps the most controversial of the potential acquisitions involves US Airways Group Inc.’s unsolicited $8.7 billion bid for Delta Air Lines Inc. The two carriers have routes that overlap significantly along the East Coast, and hubs relatively near each other in the West.
Congressmen representing Atlanta, Cincinnati, Pittsburgh, Philadelphia, Salt Lake City, Phoenix, Charlotte, N.C. and other cities where the two airlines have major operations fear that a merger would wipe out jobs, diminish air service and drive up ticket prices, Rep. John Lewis, D-Ga., said.
Concerns about a loss of competition grew dramatically last week when UAL Corp., parent of United Airlines, and Continental Airlines Inc. announced they are considering a possible merger.
US Airways and United Airlines provide service to San Luis Obispo.
In addition, AirTran Holdings Inc. offered to buy Midwest Air Group Inc. for about $290 million. With so many carriers now in play, the number of concerned congressmen is growing.
"We can voice our opinion," Lewis said "And because we all represent different parts of the country, speaking out could have a tremendous impact on what happens."
Last week, incoming House Transportation Committee Chairman James Oberstar, D-Minn., said that if it appears that the USAirways takeover of Delta would be going forward in the new year, he would hold a hearing into the matter. Teri Rucker, a spokeswoman for incoming Senate Commerce Committee Chairman Daniel Inouye, D-Hawaii., said that panel also is planning a hearing.
Oberstar said that by publicly exposing the potential dangers of airline consolidation, his committee may be able to "throw cold water" on merger mania. "We can nudge the Justice Department to take the action they must" to prevent a loss in competition, he said.
Oberstar also said opposition to consolidation is bipartisan. "I’ve heard from members on both sides of the aisle" as worries have grown about the impact on jobs and service, he said. "I haven’t heard anyone come forward and say this is a really good deal."
Michael Boyd, president of the Boyd Group Inc., an aviation consulting firm, agreed that Congress would become involved because so many lawmakers represent cities with huge stakes in the outcome. "There are a lot of dogs in this fight," he said.
Delta management opposes the transaction with US Airways, but if it were to go forward, the two carriers would have to drop routes to avoid expensive redundancies and overcome antitrust concerns. That could eliminate jobs and flights, especially in smaller cities, such as Savannah, Ga., and West Palm Beach, Fla.
"Any Georgia legislator who doesn’t stand up against this merger isn’t doing his constituents any good," Boyd said.
Indeed, many already have jumped into the battle, making floor statements and working behind the scenes in Washington to stop the merger. For example, Rep. David Scott, D-Ga., made a House floor speech shortly before the 109th Congress adjourned, saying that members of Congress should "do everything we can to stop this merger from going through on the grounds that it is anti-competitiveness, it is anti-consumer and it is anti-American."
In recent weeks, Sen. Johnny Isakson, R-Ga., talked to White House chief of staff Joshua Bolten and Attorney General Alberto Gonzalez, and in a Senate floor speech, said a Delta-US Airways combination "would lead us to singular service in many cities, an absence of competition, an inevitable increase in rates and, unfortunately, less than the healthiest aviation industry."
Earlier this month, the two chief executives, Delta’s Gerald Grinstein and US Airways’ Doug Parker, each met with Oberstar to discuss their views.
Darryl Jenkins, an industry consultant based in Northern Virginia, said that whether Congress gets deeply engaged on the issue of airline competition may depend upon the views of creditors owed money by Delta, which is under the protection of a bankruptcy court. If by next month, those creditors are in favor of the deal, then the bankruptcy judge may in turn support it and the transaction could be completed. That would push the other deals forward too.
"Everyone is interested in this (Delta deal) because if one merger goes through, then two or three other mergers will follow," Jenkins said.
Lawmakers who want to head off that scenario should focus on stopping the Delta transaction, he said.
"It’s a way to rally the troops," he said.


Bye Bye--General Lee

 

[BobbyB]

That article is about Congress defending service to the booming towns of Lynchburg VA, or Wilmington NC, by the likes of Congressman Lewis (from GA, by the way). Will service affect areas like that? Yes. You'd hope that your Representative would fight for your small town also. What about CLT vs ATL if it goes through? It will likely change, but I doubt the market in the Atlanta area is going to have to drive to CLT to catch a flight or the other way around. Here is some info from your AJC: http://www.ajc.com/business/content/printedition/2006/12/10/sbizdelta1210a.html

Last section of the article (US Air source): Combined marketshare of 70% or more only 4% of the routes in the combined structure. It also addresses how this merger is not in the same competitive environment as when the US/UAL deal was struck down.

I am willing to admit that if you read enough about this merger you will find that both sides swear that they are rightabout the likelihood it making through the DOJ. The DOJ will figure it out, if the deal even goes that far. I won't pretend that I have it figured out, if you don't pretend that you do. I suspect that you have a vested interest in one point of view (which I don't except for a bro-in-law furloughed from DAL), I hope for you and your seniority and QOL that you are correct.

 

[HAZ-MAT]

http://www.usaviation.com/forums/uploads/av-3031.gif

 

[General Lee]

That article is about Congress defending service to the booming towns of Lynchburg VA, or Wilmington NC, by the likes of Congressman Lewis (from GA, by the way). Will service affect areas like that? Yes. You'd hope that your Representative would fight for your small town also. What about CLT vs ATL if it goes through? It will likely change, but I doubt the market in the Atlanta area is going to have to drive to CLT to catch a flight or the other way around. Here is some info from your AJC: http://www.ajc.com/business/content/printedition/2006/12/10/sbizdelta1210a.html

Last section of the article (US Air source): Combined marketshare of 70% or more only 4% of the routes in the combined structure. It also addresses how this merger is not in the same competitive environment as when the US/UAL deal was struck down.

I am willing to admit that if you read enough about this merger you will find that both sides swear that they are rightabout the likelihood it making through the DOJ. The DOJ will figure it out, if the deal even goes that far. I won't pretend that I have it figured out, if you don't pretend that you do. I suspect that you have a vested interest in one point of view (which I don't except for a bro-in-law furloughed from DAL), I hope for you and your seniority and QOL that you are correct.

Bobby,

I posted the article you need to read again. Delta didn't come up with that spin, the Congressmen did, and they will be doing the questioning. Jim Oberstar, the new Chairman of the Transportation sub committee (who will reccommend any merger to the DOJ) is against mergers, and he is one of the primary reasons why the USAir/UAL merger never went through. He was just a committee member back then, and now he is the CHAIRMAN. He doesn't like cities losing service, or lack of choice. He is the guy in charge, not Doug Parker. Here is what he said again in the article:

Oberstar said that by publicly exposing the potential dangers of airline consolidation, his committee may be able to "throw cold water" on merger mania. "We can nudge the Justice Department to take the action they must" to prevent a loss in competition, he said.
Oberstar also said opposition to consolidation is bipartisan. "I’ve heard from members on both sides of the aisle" as worries have grown about the impact on jobs and service, he said. "I haven’t heard anyone come forward and say this is a really good deal." (except Parker)



Bye Bye--General Lee

 

[FDJ2]

Combined market share is the biggest indicator of what the DOJ will do. They don't usually care unless it tops 25% and the Delta/US Airways deal would be something like 18%. Not a big anti-trust issue. A few routes, maybe, but a deal breaker, probably not.

Actually, it's much more complex than that and much more political than most think. So far the only person lining up with Parker's bid is, well, Parker.

 

[General Lee]

That article is about Congress defending service to the booming towns of Lynchburg VA, or Wilmington NC, by the likes of Congressman Lewis (from GA, by the way). Will service affect areas like that? Yes. You'd hope that your Representative would fight for your small town also. What about CLT vs ATL if it goes through? It will likely change, but I doubt the market in the Atlanta area is going to have to drive to CLT to catch a flight or the other way around. Here is some info from your AJC: http://www.ajc.com/business/content/printedition/2006/12/10/sbizdelta1210a.html

Last section of the article (US Air source): Combined marketshare of 70% or more only 4% of the routes in the combined structure. It also addresses how this merger is not in the same competitive environment as when the US/UAL deal was struck down.

I am willing to admit that if you read enough about this merger you will find that both sides swear that they are rightabout the likelihood it making through the DOJ. The DOJ will figure it out, if the deal even goes that far. I won't pretend that I have it figured out, if you don't pretend that you do. I suspect that you have a vested interest in one point of view (which I don't except for a bro-in-law furloughed from DAL), I hope for you and your seniority and QOL that you are correct.

Also Bobby, I may sound absolute about this merger mania, but a lot of it is speculation. But, I try to back my speculation up with facts, or at least articles that support my position. We all have opinions too, and I have plenty. I can only hope for an outcome, but I try to dig up as much info as possible about this subject. I hope your bro-in-law is back at DL soon.

Bye Bye--General Lee

 

[BobbyB]

General, I do understand the article, and my point is that Congress doesn't get a vote on the merger. The representatives will talk and bloviate and jump up and down to defend their interest in the home district. The transportation committee can "lean" on the DOJ and make recommendations, but they don't decide anything. It is a bunch of lawyers for each side (Delta and US Air) making a case to a bunch of lawyers at DOJ. I am sure that you have read some experts who say that this shouldn't be a big deal once a few assets are sold off, others put it at 80% others at 50% and others that you cite that say anti-trust issues are insurmountable. My personal feeling is that US Air should try to work out their current merger before doing more "work." I'd like to see Delta get well (and put certain family members back to work flying airplanes), but I also don't think that this merger is so crazy that it is dead in the water. I am on your side, but after reading a lot of info on this, I DON'T think you can say that the anti-trust side is going be the the thing that kills this deal. (unfortunately)