US Airways today upped its bid to take over Delta Air Lines by about $2 billion, based on current US Airways share prices. During a conference call with investors this morning, US Airways management said the revised offer is an appeal to Delta creditors and would expire on Feb. 1, by which time the carrier hopes to gain creditor support and move forward with a transaction.
US Airways now is offering Delta's unsecured creditors $5 billion in cash and 89.5 million shares. The carrier has gained financing commitments from Citigroup and Morgan Stanley.
Delta today held firm to its anti-merger stance, but noted that it would "fulfill its fiduciary duty" by reviewing the offer."
"On its face, the revised proposal does not address significant concerns that have been raised about the initial US Airways proposal and, in fact, would increase the debt burden of the combined company by yet another $1 billion," Delta said in a statement.
Today's revised offer follows more than a month of back and forth between the two carriers. Last month Delta hired Blackstone Group as its financial advisor, which noted that US Airways' initial offer of about $8 billion did not match the consolidated value of the airline. US Airways said the revised deal outlined today would "provide between $12.7 and $15.4 billion in value to Delta's unsecured creditors," depending on share prices, and surpass the range Delta outlined in its stand-alone plan. US Airways chairman and CEO Doug Parker this morning said the new deal would give Delta shareholders 49 percent pro forma ownership of a merged carrier.
"While our original proposal offered substantially more value to Delta's unsecured creditors than the Delta stand-alone plan, we are making this revised offer to eliminate any doubt that a merger with US Airways offers Delta's unsecured creditors significantly more value." Parker said.
Parker reiterated the benefits US Airways sees in merging with Delta, including a level of synergies, a strong brand, a complementary route structure and resulting consumer benefits
(BTN, Dec. 4, 2006).
Parker noted that the Feb. 1 expiration date would build in a "sense of urgency," but was a workable timeframe for creditors. "We're not asking Delta management to do anything," he said this morning. "We're asking the creditor committee to lend its support," adding that if creditors support the deal, Delta management would follow. "Eventually we want to do this in a way with their full support," Parker said of Delta management. "We're not there yet, so I imagine you'll continue to hear some of this back and forth."
Delta last month in a rebuttal to US Airways claimed the proposal to be "structurally flawed," as US Airways faces antitrust hurdles, has "overwhelming labor issues" and still is integrating American West, adding that the deal is premised on "faulty economic assumptions" and would "erode" the Delta brand
(BTNonline, Dec. 19, 2006). Parker, however, said he is confident that regulators would approve the deal.
Creditor support would be the first step in a merger with Delta, after which US Airways would need to enter a merger agreement, file with the Department of Justice, submit a reorganization plan with Delta's bankruptcy court, gain approval from Delta's creditors and get the nod from US Airways shareholders. Parker today said that if US Airways gains creditor support by the deadline, it would take about four to six months for the deal to close.