frm airline exec

Unintended Consequences of a Delta/Northwest Merger

Maybe the worst analysis I've ever seen. Two companies of roughly comparable market caps merge, and the combined market cap is the average!!! How about the combined mkt cap is roughly double? The error comes from averaging the currently outstanding number of shares instead of adding them! If every NWA and DAL shareholder got one share of the combined company, there would be roughly twice as many shares outstanding. Thus, even if the share price didn't rise, as it would be expected to do in light of the presumed synergies of the combined company, the market cap would be double that of each stand alone company. Thus, on a risk adjusted basis, the merged company has a better RAD; the opposite conclusion than the one reached by the author!! How does this stuff get published?