Northwest Rights Offering Includes Poison-Pill Provision
DOW JONES NEWSWIRES
May 18, 2007 3:23 p.m.
By Joseph Rebello
Of DOW JONES NEWSWIRES
Northwest Airlines Corp. (NWACQ) said Friday that it will issue new stock under a plan that includes poison-pill provisions aimed at thwarting takeover bids from any airline with more than $1 billion in annual revenue.
In a filing with the Securities and Exchange Commission, the company said that new stock it intends to issue upon its exit from bankruptcy will be accompanied by stockholder rights designed to prevent a takeover by a "major carrier" or an affiliate of such a carrier.
Northwest, whose Chapter 11 reorganization plan won court approval Friday, has said it intends to offer up to $750 million in new stock after it exits bankruptcy proceedings on May 31. Its existing stock will be canceled.
In the SEC filing, Northwest said the poison-pill provisions would be triggered if a major carrier or its affiliate acquires ownership of more than 20% of the company's common stock, or offers to buy more than 20% of the stock.
Northwest has been in bankruptcy reorganization since September 2005. In developing its Chapter 11 plan, the airline considered merging with another airline but opted in the end to emerge from bankruptcy as a standalone carrier, according to court documents filed late Thursday.
Those documents were filed by a court-appointed examiner investigating allegations that Northwest shortchanged shareholders by not attempting a merger.
The examiner, Richard Nevins, concluded that Northwest on the whole acted appropriately. Still, he said Northwest wasn't candid about the value of an anti-takeover mechanism it adopted to foil an acquisition by Continental Airlines Inc. (CAL).
Nevins also said that Northwest didn't attempt to "market" itself to another airline, but he said it didn't have an obligation to do that anyway. "Northwest's board did not have an express duty to market the company in order to compare its potential sale and/or merger value to the valuation in the company's standalone plan of reorganization," Nevins said.
Nevins also said that in contemplating a merger, Northwest feared it could negate the achievements of its Chapter 11 restructuring.
"Consolidation in the airline industry is a complex exercise, having numerous risks and issues - most significantly, the need to harmonize and renegotiate the labor agreements of each airline in a merger," Nevins said.
Northwest cut labor costs by $1.4 billion a year in its Chapter 11 reorganization. Nevins said that "were the company to merge with an airline with a higher cost structure than the company" and then proved unsuccessful in lowering those costs, "the combination would negate the benefits the company had achieved through its Chapter 11 actions."
Northwest said Friday it has applied to trade its new stock on the New York Stock Exchange, under the ticker symbol NWA. Trading is expected to begin May 31.
The price of that stock, however, may be lower than was previously expected. According to court documents filed late Thursday, the underwriter of the stock offering, JPMorgan, initially estimated the price at $30 a share.
But JP Morgan told a court-appointed examiner that "the equity would trade at approximately $24 per share" based on current market conditions, the examiner said in court documents. The diminished expectations, analysts said Friday, partly reflect the toll on airline stocks relating to soaring oil prices.
DOW JONES NEWSWIRES
May 18, 2007 3:23 p.m.
By Joseph Rebello
Of DOW JONES NEWSWIRES
Northwest Airlines Corp. (NWACQ) said Friday that it will issue new stock under a plan that includes poison-pill provisions aimed at thwarting takeover bids from any airline with more than $1 billion in annual revenue.
In a filing with the Securities and Exchange Commission, the company said that new stock it intends to issue upon its exit from bankruptcy will be accompanied by stockholder rights designed to prevent a takeover by a "major carrier" or an affiliate of such a carrier.
Northwest, whose Chapter 11 reorganization plan won court approval Friday, has said it intends to offer up to $750 million in new stock after it exits bankruptcy proceedings on May 31. Its existing stock will be canceled.
In the SEC filing, Northwest said the poison-pill provisions would be triggered if a major carrier or its affiliate acquires ownership of more than 20% of the company's common stock, or offers to buy more than 20% of the stock.
Northwest has been in bankruptcy reorganization since September 2005. In developing its Chapter 11 plan, the airline considered merging with another airline but opted in the end to emerge from bankruptcy as a standalone carrier, according to court documents filed late Thursday.
Those documents were filed by a court-appointed examiner investigating allegations that Northwest shortchanged shareholders by not attempting a merger.
The examiner, Richard Nevins, concluded that Northwest on the whole acted appropriately. Still, he said Northwest wasn't candid about the value of an anti-takeover mechanism it adopted to foil an acquisition by Continental Airlines Inc. (CAL).
Nevins also said that Northwest didn't attempt to "market" itself to another airline, but he said it didn't have an obligation to do that anyway. "Northwest's board did not have an express duty to market the company in order to compare its potential sale and/or merger value to the valuation in the company's standalone plan of reorganization," Nevins said.
Nevins also said that in contemplating a merger, Northwest feared it could negate the achievements of its Chapter 11 restructuring.
"Consolidation in the airline industry is a complex exercise, having numerous risks and issues - most significantly, the need to harmonize and renegotiate the labor agreements of each airline in a merger," Nevins said.
Northwest cut labor costs by $1.4 billion a year in its Chapter 11 reorganization. Nevins said that "were the company to merge with an airline with a higher cost structure than the company" and then proved unsuccessful in lowering those costs, "the combination would negate the benefits the company had achieved through its Chapter 11 actions."
Northwest said Friday it has applied to trade its new stock on the New York Stock Exchange, under the ticker symbol NWA. Trading is expected to begin May 31.
The price of that stock, however, may be lower than was previously expected. According to court documents filed late Thursday, the underwriter of the stock offering, JPMorgan, initially estimated the price at $30 a share.
But JP Morgan told a court-appointed examiner that "the equity would trade at approximately $24 per share" based on current market conditions, the examiner said in court documents. The diminished expectations, analysts said Friday, partly reflect the toll on airline stocks relating to soaring oil prices.
