M&A

Delta Spurns US Air Bid, Sees Profit

Going it alone would have a much better effect, the airline contends.
Stephen TaubDecember 19, 2006

Delta Air Lines has filed a reorganization plan which calls for it to emerge from bankruptcy by mid-2007 as an independent company. The plan also projects that the airline will return to profitability in 2007 and boost its net income to about $1.2 billion in 2010.

At the same time, Delta spurned US Airways’ unsolicited $8.4 billion merger proposal, asserting that its board concluded that the company’s creditors and other stakeholders “are best served by moving forward” with the company’s stand-alone plan.

That plan “will provide our creditors with superior value as well as a faster recovery and much greater certainty of execution than the US Airways proposal,” the company stated in a press release. The merger plan is “structurally flawed” and burdened by “overwhelming antitrust and labor issues,” Delta said.

Further, the deal’s “substantial anticompetitive effects” would hurt consumers and communities, according to Delta, which contended that the merger plan “relies on claimed synergies that are premised on flawed economic assumptions.”

Going it alone would have a much better effect, the airline contends. Following completion of its five-year reorganization plan, Delta predicted that the airline would reorganized will have a consolidated equity value of roughly $9.4 billion to $12 billion. That would enable Delta’s unsecured creditors recover between 63 percent and 80 percent of their allowed claims, according to the company.

The reorganization plan projects operating margins rising from 8 percent in 2007 to 10.5 percent by 2010. Cash flow margins are projected to rise from 15.7 percent in 2007 to 17.8 percent in 2010. Delta also expects to cut net long-term debt by more than 50 percent, to about $7.5 billion in 2007.

As is usually the case with bankruptcy reorganizations, the company’s existing stock would become worthless and creditors would get new common shares in exchange for their claims.