US Airways Surprises Delta With Hostile Bid

Includes: AAL, DAL
by: SA Eli Hoffmann

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

Surprise Hostile Bid for Delta May Spur Airline Merger Wave [Wall Street Journal]

Summary: US Airways' $8.67b hostile takeover bid for Delta Air Lines would create the U.S.'s biggest airline and bring Delta out of the bankruptcy protection it's been in for more than a year. Other airline stocks were buoyed by the news. Delta CEO Gerald Grinstein says he wants Delta to emerge from bankruptcy proceedings on its own. US Airways will need Delta-creditor support and antitrust approval if it hopes to push the hostile bid through. Bankruptcy code requires 2/3 creditor approval for a restructuring claim, and Delta management has the exclusive right to file a plan with the courts until Feb. 15 -- hostile takeovers in the midst of bankruptcy protection are a rare breed. Ultimately Grinstein must make creditors believe he's got the better deal, especially after the market's "euphoric" reaction, which drove LCC shares up 17%. The offer is for $4b in cash, and 78.5m LCC shares ($4.67b as of yesterday's close); analysts say creditors would get $0.50 on the dollar (Delta US Airways Chart 16 11 06bonds went from $0.40/$1 to above $0.50 yesterday). The combined airline, said US Airways' CEO Doug Parker, would be called Delta, and would cut about 10% of its capacity. Some unknowns: (1) Other bidders? Some suggest Northwest, the other big airline still in bankruptcy protection. (2) Can Parker win over self-interested, feuding creditors? (3) Will employees/unions cooperate with cost-saving measures? (4) Will the Justice Department approve the deal?
Related links: Media coverage: Flight Data: How US Airways/Delta Compare [WSJ] • Airline-Industry Experts React To Proposed Deal [WSJ]. Commentary: Citi Advises US Airways in Hostile Bid for DeltaMerger Mania Grips the AirlinesDelta Airlines UpdateYou Don't Have to be Crazy to Buy AirlinesJim Cramer on LCC.
Potentially impacted stocks and ETFs: US Airways Group Inc. (LCC) • Competitors: AMR Corp. (AMR), Continental Airlines Corp. (NYSE:CAL), Southwest Airlines Co. (NYSE:LUV), JetBlue Airways Corp. (NASDAQ:JBLU), UAL Corp. (UAUA), AirTran Holdings Inc. (AAI)

Seeking Alpha's Wall Street Breakfast summarizes today's key market- and stock-moving news. Receive it by email every weekday morning (free/no spam).

Seeking Alpha is not affiliated with Wall Street Journal.