Delta to Buy Comair in $1.8 Billion Deal - TheStreet

Delta to Buy Comair in $1.8 Billion Deal

Also today, both Delta and Continental Airlines reported earnings that exceeded analysts' expectations.
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Delta Air Lines

(DAL) - Get Report

today announced it will acquire

Comair Holdings


for $1.8 billion, in a move aimed at linking smaller local markets to Delta's national and international hubs.

Also today, both Delta and

Continental Airlines

(CAL) - Get Report

reported earnings that exceeded analysts' expectations.

Delta is offering $23.50 a share for Comair, or a 31% premium over Friday's closing price, to buy 78% of the Cincinnati-based company that it does not already own. The deal continues Delta's effort to connect regional jets to its larger hubs, the company said. Delta acquired

Atlantic Southeast Airlines

earlier this year.

Some analysts see another advantage: Buying the company eliminates a potentially problematic negotiation that was coming up later this year when a code-share agreement which enabled Comair customers primarily from cities in the Midwest and Florida to fly to Delta's hubs in Cincinnati and Orlando was set to expire.

"It basically gives them control," said Helane Becker, an analyst with

Buckingham Research Group

, which has not done any underwriting for Delta. "I'm sure this would have been a very difficult negotiation, given the many personalities that would have been involved."

Shares of Comair surged in


trading today, rising 5 1/8 to 23 at midday. Delta's stock was up 1/16 at 50 3/16 on the

New York Stock Exchange


"Comair is a highly successful regional airline with strong and respected leadership and an outstanding record of financial and operational performance," Leo F. Mullin, Delta's president and chief executive, said in a statement. "That has tremendous value to our system as we build for the future."

The deal is expected to lead to just a few -- if any -- job cuts at Comair, Delta said. Comair executives will move into Delta's management.

Meanwhile, both Delta and Continental were able to beat analysts' projections even though they said their profits were dulled by losses incurred from Hurricane Floyd, causing numerous flight cancellations.

But Becker, of Buckingham Research Group, was not impressed in either case. Both companies had warned Wall Street several months ago that original expectations would not be attained, leading analysts to adjust their figures downward.

"Yeah, they exceeded reduced expectations, but they still weren't the expectations that they thought they would reach three months ago," said Becker, who rates Delta as a market performer and Continental as a buy. "I wouldn't put too much stock in it."

Delta reported net income for the first fiscal quarter of $290 million, or $1.96 a diluted share. A poll of analysts by

First Call/Thomson Financial

had estimated the airline would post $1.91 a share.Including gains from investment sales and one-time charges, the Atlanta-based company reported net income of $352 million, or $2.38 a diluted share. In the comparable quarter for 1998, Delta earned $327 million, or $2.08 a share. Delta reported revenues grew 2% to $3.88 billion from $3.81 billion in the 1998 third quarter.

Continental reported third-quarter net income of $110 million, or $1.53 a diluted share. Analysts polled by First Call had estimated that the Houston-based airline would earn $1.47 a share. In the year-earlier quarter, the airline earned $73 million, or 97 cents, after a one-time charge of $77 million. Continental's revenue rose 8% to $2.28 billion from $2.1 billion in the comparable quarter last year.

At midday, Continental's stock was trading up 1/4 at 36 5/16 on the NYSE.