Updated from 12:55 p.m. ESTUS Airways ( LCC) has raised its hostile offer for Delta Air Lines ( DALRQ), increasing its bid to roughly $10.2 billion, but now it might not be the only potential merger partner for the Atlanta-based carrier. Under the new terms, Delta's unsecured creditors would receive $5 billion in cash and 89.5 million US Airways shares. US Airways valued its first half-cash, half-stock offer made Nov. 15 at $8 billion. Since then, US Airways' stock has risen, and lately, it was up again, adding 92 cents, or 1.6%, to $58.82. Meanwhile, complicating matters for US Airways is word that Delta has held talks with the other bankrupt major airline, Northwest ( NWACQ), according to an industry source who's aware of the situation but didn't want to be named. If US Airways had gotten wind of the discussions, that might have had something to do with its willingness to come at Delta with substantially improved terms. Northwest declined to comment. The talks were first reported by The Wall Street Journal. What's certain is that the revised US Airways proposal was triggered partially by Delta's Jan. 4 bankruptcy court request to buy 30 regional jets from Bombardier with options for 30 more, said US Airways President Scott Kirby in an interview. "Actions like that could potentially destroy some of the $1.65 billion in synergy value," he said. "We think the time to act is now, and we are ready to move the process forward," Kirby added. "If we start now, the creditors can avoid getting into a situation where they have to make a decision with incomplete information." The new bid would expire Feb. 1 unless creditors take "affirmative action" on three fronts. They include beginning due diligence on the offer, filing required documents under the Hart-Scott-Rodino Act, and postponing a court hearing, now scheduled for Feb. 7, on Delta's disclosure statement.
"It's not a specific black-line test," Kirby said, but the intent is to ensure that creditors begin to evaluate the US Airways proposal. "We haven't seen as much
action as we would like," he said. The deal could be completed in four to six months, said Kirby, who dismissed the suggestion that its value is diminished by the potential for a lengthy review by the Justice Department. "DOJ will give us feedback in 30 to 60 days," he said. Reviews often take longer only because the department says assets must be divested, after which the companies haggle over the divestitures. "We would be prepared to deal quickly with the issues," Kirby said. "We did not plan a $10 billion-plus offer only to have it fail to succeed on antitrust grounds." The offer is worth even more than $10.2 billion if Delta's own valuation methodology and earnings assumptions are used, US Airways said. With those assumptions, US Airways adviser Citigroup places the value at $12.7 billion and $15.4 billion, compared with the $9.4 billion to $12 billion valuation that Delta has placed on its standalone plan. Delta, which has made clear it wants to emerge from bankruptcy alone, said following the latest overture that its board "will fulfill its fiduciary duty to review the revised unsolicited merger proposal announced today by US Airways."
"On its face, the revised proposal does not address significant concerns that have been raised about the initial US Airways proposal and, in fact, would increase the debt burden of the combined company by yet another $1 billion," Delta said. US Airways said it has $8.2 billion in financing from Citigroup and Morgan Stanley, the latter of which was added Monday as joint lead arranger of the transaction. The financing package includes $5 billion to fund the cash portion of the offer and $3.2 billion to refinance existing obligations at both carriers. US Airways said the deal would add to its earnings in the first year after the merger closes.