ATLANTA, Georgia (AP) -- US Airways Group Inc. said Wednesday it has made an
$8 billion cash and stock bid for Delta Air Lines Inc. in a deal that would
create one of the world's largest carriers.
The move came despite Delta's repeated statements it isn't interested in a
merger.
The offer to buy Delta once the Atlanta-based airline emerges from bankruptcy
protection by the middle of 2007 would give Delta's unsecured creditors $4
billion in cash and 78.5 million shares of US Airways stock.
As it stands now, Delta's common shares are likely to end up worthless when
it exits bankruptcy. In most bankruptcy cases, the debtholders usually end up
with new shares of the company.
Doug Parker, chief executive of Tempe, Arizona-based US Airways, said in a
telephone interview that he is aware of the comments made by Delta's
management in recent months, but he believes this is a fair offer and that
ultimately Delta's creditors will see that.
"Delta is in bankruptcy and bankruptcy is a very open process," Parker said.
"The process is designed so that the creditors get the highest possible value
for their clients. Given that process, what we have done is gone public with
an alternative to a standalone plan."
Delta spokeswoman Thonnia Lee seemed surprised by the announcement Wednesday
morning and said she could not yet comment on it in detail. But she said Delta
has consistently said that it plans "to emerge from bankruptcy as an
independent airline."
Delta's chief, Gerald Grinstein, said as recently as last month that he had
received "feelers" from UAL Corp.'s United Airlines about a possible merger
18 months ago, but that he quickly rejected them. He reiterated at the time
that Delta has no plans for a merger.
US Airways also had been reported to be interested in Delta months ago, and
it released letters Wednesday showing its previous communications with Delta.
Parker said a US Airways-Delta combination would have about 85,000 employees.
He said he would anticipate flying with 10 percent fewer planes, but that
doesn't mean job cuts.
"The plan is not predicated on any job cuts," Parker said.
Parker did not say why US Airways was moving now, but he did say the airline
believes its offer is a good one.
"We expect it would prevail over any other bid if there were any," Parker
said.
US Airways said it has received a financing commitment from Citigroup Inc. to
provide $7.2 billion in new financing for the deal.
The money would be used to refinance Delta's debtor-in-possession credit
facility, refinance US Airways' existing senior secured facility with GE
Capital, and provide the $4 billion cash portion of US Airways' offer. All
other allowed secured debt and administrative claims would be assumed or paid
in full.
US Airways said the offer is a 25 percent premium over the current trading
price of Delta's pre-petition unsecured claims as of Tuesday, and a 40 percent
premium over the average trading price for Delta unsecured claims over the
past 30 days.
If the deal is completed, the airline would operate under the Delta name and
serve more than 350 destinations across five continents. Parker said he has
not decided where the merged company would be based.
According to letters filed with the Securities and Exchange Commission, Parker
originally had a conversation with Grinstein about a combination of the two
airlines in the spring and followed up with a letter to Grinstein on September
29.
In a letter to Parker dated October 17, Grinstein said he and Delta's board
"believe it would not be productive to engage in the type of exploratory
discussions that you proposed at the time."
US Airways, which was created after US Air emerged from bankruptcy and was
acquired by America West last year, said the deal is expected to generate
$1.65 billion in annual savings from optimization of the airlines'
complementary networks and combining facilities in overlap airports.
The deal would reduce unprofitable flying and improve the mix of traffic,
US Airways said. The company's statement did not specify which airports would
be affected.
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