US Airways Raises Bid For Delta to $10.2 Billion

By Del Quentin Wilber
Washington Post Staff Writer
Thursday, January 11, 2007

US Airways turned up the pressure yesterday in its hostile takeover bid for bankrupt Delta Air Lines by boosting its offer, setting a February deadline for action and sending its top executive to Capitol Hill to reassure legislators that a merger would not harm consumers.

The push comes as US Airways appeared to have lost some momentum in its effort to entice Delta's creditors to accept its bid. Yesterday, it increased its original offer, about $8.6 billion, to $10.2 billion, including $5 billion in cash and nearly 90 million shares of US Airways stock.

Attorneys representing Delta's creditors committee did not return phone messages or e-mails seeking comment. US Airways chief executive W. Douglas Parker said in an interview that his company increased its bid because he "wanted to remove any doubt as to which proposal offered more money to the creditors."

With creditors considering "the risk of our plan against the risk of a stand-alone plan," US Airways wanted to "make that choice that much easier for them," Parker said.

Analysts yesterday said US Airways' latest offer would probably be taken seriously by Delta's creditors. "While it is likely that a US Airways-Delta merger could take longer to close than Delta emerging from bankruptcy, one cannot ignore the magnitude of the cash component" of the offer, Merrill Lynch analyst Michael Linenberg wrote in a research note.

Parker set a Feb. 1 deadline for creditors to respond to the offer by meeting conditions that would include Delta opening its financial books for review. US Airways is running against a deadline to reap the benefits of combining the carriers while Delta is still under Chapter 11 bankruptcy protection.

With Delta in bankruptcy protection, US Airways could more easily rework contracts and leases for planes and other high-cost items.

Last month, Delta submitted a reorganization plan to the U.S. Bankruptcy Court that valued the company at $9.4 billion to $12 billion. Its chief executive, Gerald Grinstein, said in an interview last month that he wanted Delta to emerge from bankruptcy protection as a stand-alone carrier. He shrugged off suggestions that he would seek partners.

But reports on the Wall Street Journal's Web site yesterday indicated that executives at Delta and another carrier in bankruptcy protection, Northwest Airlines, have been discussing a merger. Representatives of both airlines declined to comment on the reports.

US Airways' original bid for Delta in November sparked speculation in the industry about potential mergers. Continental and United airlines have been talking, according to sources with knowledge of the conversations. And Northwest has asked a bankruptcy judge for permission to hire financial consultants to help it plan for the possibility of a merger.

The merger talk led the Senate Commerce Committee to announce that it would hold a hearing on the issue Jan. 24. Committee Chairman Daniel K. Inouye (D-Hawaii) did not respond to requests for comment.

Delta is based in Atlanta, and Georgia's senators have been critical of the proposed US Airways-Delta merger and sent a letter to the Commerce Committee requesting the hearing.

Calling US Airways a "bottom fisher" for targeting Delta as it attempts to emerge from bankruptcy protection, Sen. Johnny Isakson (R-Ga.) said in an interview that a merger would hurt consumers because a combined airline would cut flights to small and mid-size markets now served by both carriers.

When US Airways announced its offer, Isakson said he called U.S. Attorney General Alberto R. Gonzales to urge his department to "purse every competitive issue they need to pursue." The Justice Department would analyze a potential merger between the airlines for antitrust violations.

Congressional concerns about a merger prompted Parker to visit a dozen legislators on Capitol Hill this week. He declined to identify the lawmakers but said he looked forward to the possibility of testifying before the Commerce Committee.

"It will give us the opportunity to explain . . . that this is good for consumers and good for our industry," he said.

Some analysts said that a deal would face serious obstacles and that creditors may not be swayed just by the extra cash. The creditors could decide that the money would not make up for the headaches of a potentially grueling regulatory approval process at the Justice Department. Also, executives would have to combine two very different workforces -- one of which is fiercely fighting a merger, the analysts said.

"The creditors are sitting there going, 'It's more money, but will it get done?' " said Helane Becker, an analyst with the Benchmark Co. Delta coming out of bankruptcy protection "is the safer offer because it is the one that gets done sooner rather than later."

Staff researcher Richard Drezen contributed to this report.

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