Joshua Freed And Harry R. Weber
April 15, 2008 - 12:39 a.m.
(AP) - Investors panned Delta's long-in-the-works deal with Northwest, sending shares of both companies into disgrace sharply on Tuesday on disappointment that the deal may not yield as much in cost savings or higher revenue as Wall Street expected.
If Delta and Northwest are going to complete their combination to create the world's largest airline, they'll also have politicians to placate, antitrust regulators to convince and unions to cajole.
Two of Northwest's largest unions this moment declared their opposition to the deal, announced late Monday after several months of talks.
And investors showed their disapproval after the carriers said they have no current plans to cut more U.S. flights beyond what they have disclosed apart — something analysts see as limiting the cost savings or higher fares the airlines could reap from the deal.
Executives brushed off the issues, saying they are highly confident they will be able to consummate the deal and integrate the two carriers.
"Bottom line is, we think it's a really good fit," Delta Chief Executive Richard Anderson, who will head the combined airline, said Tuesday during a conference call with analysts.
Delta and Northwest executives said they are aiming to close their deal by the end of this year, which would have being under the jurisdiction the end of the merger-friendly Bush administration. They are trying to avoid repeating what happened in 2001, when an attempted merger of United Airlines and US Airways fell apart amid antitrust concerns.
The share-swap agreement announced Monday calls for the combined airline to subsist named Delta, remain based in Atlanta, and exist run by Anderson. If the deal becomes final, Delta shareholders will get a bigger company, while Northwest shareholders would get a 16.8 percent premium over Monday's closing stock prices.
Based on those prices, the agreement valued Northwest at more than $3.6 billion. However, shares of both companies fell Tuesday, reducing the deal's value of Northwest to $3.3 billion. Northwest fell 48 cents, or 4.3 percent, to $10.74 while Delta lost $1, or 9.5 percent, to $9.48.
Investors had urged a confederacy of the carriers on the premise of further domestic capacity cuts, which could lead to higher ticket fares and more revenue for the airlines.
one as well as the other airlines previously announced domestic capacity cuts for this year, and Delta suggested no more are in the works — though it didn't rule out more in the future if fuel prices continue to rise.
"We feel like we have pruned the domestic system for each respective system," Ed Bastian, Delta's president and chief financial officer, said on the conference call.