US Airways Boosts Delta Offer to $10.2bn
NEW YORK ~ US Airways has raised its offer for bankrupt carrier Delta Air Lines to US$10.2 billion after Delta’s rejection last month of an $8-billion bid.
The new offer aims to persuade Delta’s creditors, who play a key role in bankruptcy proceedings, to accept a merger instead of Delta management’s plan to emerge from creditor protection on its own.
A statement from US Airways said the new offer sets a value for Delta of between $12.7 billion and $15.4 billion, compared with a range of $9.4 billion and $15.4 billion under the Delta management plan.
“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,” said US Airways chairman and chief executive Doug Parker.
“It is time for this process to move forward. We continue to believe that this is the right time to create a better airline that provides more choice to consumers, increased job security for both airlines’ employees and generates more value for all of our stakeholders.”
Delta said in a statement that its board “will fulfill its fiduciary duty to review the revised unsolicited merger proposal.”
But the statement added, “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.”
Last month the third-biggest US carrier filed its reorganization plan with the US Bankruptcy Court overseeing its finances, and stressed its interests were better served by remaining independent.
The Delta board argued at the time that the US Airways bid “has an unacceptably high risk of not achieving antitrust clearance, because it would harm consumers and communities.”
Additionally, Delta said the savings promised from US Airways “are premised on faulty economic assumptions,” and that a merger would saddle the company “with a precariously high debt load.”
Meanwhile the Wall Street Journal said Delta had begun merger talks with Northwest Airlines, which is also in bankruptcy protection, as another possible alternative.
The new US Airways offer proposes to give Delta’s creditors $5 billion in cash and $89.5 million US Airways shares. The offer expires on February 1.
US Airways, the sixth largest US carrier, said it had committed financing from Citigroup and Morgan Stanley for $8.2 billion to cover the $5 billion in cash and to refinance $3.2 billion in debt of both carriers.
The proposal would merge the two carriers and keep the Delta name, which is better known domestically and internationally.
The “new Delta” would “provide consumers across the nation access to a larger network that connects them to more people and places,” US Airways said, arguing that its lower operating costs would result in lower fares.
“Employees also will benefit from working for a larger and more competitive airline.”
“This is a transaction that makes sense for US Airways stockholders, Delta creditors, the employees and customers of both companies, and the communities that we serve,” said Parker.
The US Airways bid would further shake up an industry that is only just emerging from years of financial crisis.
US Airways, under its old ownership, has been in bankruptcy protection twice in recent years. The current firm emerged from bankruptcy protection in September 2005 as part of a deal that merged the old company with low-cost carrier America West.
Delta filed for protection under Chapter 11 of the US bankruptcy code in September 2005, the same day as Northwest Airlines.Filed under: