US Airways continues to aggressively push its bid to take over Delta Air Lines, raising its offer from $8.5 billion to $10.2 billion.
The new offer includes a roughly even mix of cash and shares and is backed by Wall Street investment powerhouse Morgan Stanley. US Airways set an early February deadline, but few expect its three-month-old unsolicited campaign to take over Delta to go away quickly.
Behind the scenes, Delta chief executive Jerry Grinstein is talking about a tie-up or outright merger with Northwest Airlines. Delta and Northwest have been bankrupt since September 2005 and a combination of the two would provide an ironic counterpoint to US Airways chief executive Doug Parker's argument that bankruptcy eases the consolidation process. The combination is "a strategically sound fit", says Calyon Research analyst Ray Neidl.
US Airways has taken its offer directly to Delta creditors and bondholders, bypassing Delta's Atlanta-based management that has rejected its overtures repeatedly. Parker says the new offer is intended "to clarify" the issues for Delta creditors, who he says had "struggled to understand" the initial offer.
Delta responded not just with another rejection, but with an intensified public campaign to urge US Airways to back off. The Delta chapter of the Air Line Pilots Association (ALPA) union has vowed to defeat Parker or make any hostile takeover unworkable.
ALPA has pledged $15 million "to make sure Parker fails". It will spend the money on a lobbying and public relations campaigns in Atlanta and Washington. "The Delta pilots will not change any provision of our contract to facilitate the hostile takeover of our company," says union leader Lee Moak.
US Airways' increased bid depends on support from Delta creditors: they must support the start of a due diligence process that would see Delta's books, until now jealously guarded by management, opened to US Airways.
This next act in the drama of US airline consolidation now centres on former Continental Airlines chief executive Gordon Bethune, hired by Delta's unsecured creditors as a consultant to help evaluate the bid. As JP Morgan's Jamie Baker notes, Bethune has "long been a supporter of industry consolidation" and a consummate dealmaker.
Source: Airline Business
