US Airways Withdraws Offer for Delta
http://www.nytimes.com/2007/01/31/busin ... r=homepage
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January 31, 2007
US Airways Withdraws Offer for Delta
By MICHAEL J. de la MERCED
US Airways said Wednesday that it would withdraw its $10.2 billion offer to acquire Delta Air Lines out of bankruptcy after the offer failed to win the support of the official committee of Delta's creditors.
The move marked a victory for Delta's management and its pilots' union, both of which have repeatedly said that Delta should pursue a plan that allows it to exit Chapter 11 protection as an independent airline.
US Airways, of Tempe, Ariz., had said that its offer would expire Thursday unless Delta's creditors asked the airline open its books so it could perform due diligence and took other steps to delay Delta's reorganization plan.
In a statement Wednesday, however, the creditors' committee said it was backing Delta's standalone plan.
US Airways chief executive W. Douglas Parker said in a statement Wednesday that he continued to believe a merger would provide more value for Delta's creditors and suggested that Delta's creditors committee had overstated concerns about such a deal.
"We are disappointed that the committee, which has been chosen to act on behalf of all Delta creditors, is ignoring its fiduciary obligation to those creditors," he said.
A deal would have combined Delta, the third-largest domestic airline by passenger volume, with US Airways, the fourth largest. While US Airways claimed a merger would produce $1.65 billion in synergies and an airline with a dominant position in East Coast routes, Delta has raised concerns about potential antitrust problems and the debt that a combined Delta-US Airways would carry. Mr. Parker had said that he would sell off assets like one of the airlines' popular shuttle routes to satisfy regulators.
Delta's creditors committee said that it reached its decision after considerable debate. The committee added that it would work with Delta management toward confirmation of its reorganization plan.
In a statement, Delta's chief executive, Gerald Grinstein, thanked the creditors committee and to Delta employees for supporting the airline's plans to remain independent. He referenced the "Keep Delta My Delta" campaign, which Delta employees created, and management later joined, aimed at defending the airline against US Airways' bid.
"Using the bankruptcy process the right way, Delta people have transformed their company's business model," Mr. Grinstein said. "Our focus now is on the work still before us to emerge from Chapter 11 this spring as a strong, healthy, and vibrant global competitor."
US Airways' bid for Delta, first announced in November, set off speculation about consolidation among the major airlines, which are struggling with fuel costs, pension obligations and competition from low-cost upstarts. There have since been reports that United Airlines and Continental Airlines have held talks about a possible merger and that Northwest Airlines and Delta have discussed a possible alliance. Delta management has denied that merger negotiations with Northwest took place.
Northwest's chief executive said Tuesday that the airline plans to emerge from bankruptcy on its own later this year and stated that it would remain independent through the rest of 2007. The executive, Douglas Steenland, declined to comment on whether his airline held talks with Delta or would in the future.
A second, unofficial group of Delta bondholders, comprising investment banks and hedge funds, has urged the creditors committee to take action on the US Airways bid. According to reports, members of the informal committee approached US Airways over the weekend, asking for a $1 billion increase in the offer. While US Airways management confirmed that it has drawn up such an increased bid, it said that offer was never taken to the airline's management, and Mr. Parker confirmed that it was not currently on the table.
Shares in US Airways rose 1.2 percent to $53.75 in trading early Wednesday afternoon. Delta 8.3 percent notes maturing in 2029 traded at $61 during the same period, about level with their closing price Tuesday.
