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The Honolulu Advertiser
Posted on: Wednesday, December 20, 2006

Delta says no thanks to US Airways merger

By Marilyn Adams
USA Today

US Airways' pursuit of Delta Air Lines took on a more hostile tone after Delta formally rejected its advances yesterday and announced its intention to emerge from bankruptcy as an independent airline.

Delta said as an independent, it would be worth $9.4 billion to $12 billion when it exits Chapter 11 protection next spring. US Airways' unsolicited cash-and-stock bid was worth $8.4 billion at US Airways' closing price Tuesday.

CEO Gerald Grinstein said Delta believes an independent airline offers investors and creditors greater value and certainty of success than US Airways' proposal.

US Airways would not say yesterday whether it will sweeten its offer but said it remains a "determined bidder" for the nation's third-biggest carrier. Spokeswoman Andrea Rader said US Airways had hoped to work cooperatively on a merger with Delta.

A merger with US Airways, the seventh-biggest U.S. carrier, would create the biggest domestic airline by passenger capacity, passing American Airlines.

US Airways says it will press its offer with Delta's creditors committee, which has taken no official stand. The committee could pressure management to open its books to US Airways and ask the bankruptcy judge to consider the merger. But so far, the committee has worked with Delta, which says the stand-alone plan would give creditors a stock payout worth 63 percent to 80 percent of their claims.

US Airways is offering $4 billion cash and 78 million shares of its stock. It says a merger would save the combined airline $1.6 billion a year. Delta questions those savings.

And Delta's Grinstein says a sweetened US Airways offer would not overcome antitrust and other obstacles. Delta CFO Ed Bastian says a merger would leave the new airline with $23 billion in debt, about double what Delta would have as an independent.

Goldman Sachs analyst Robert Barry says another option for Delta would be a bid from United Airlines, because route networks and corporate cultures would be a good fit. But analyst Ray Neidl of Calyon Securities says he doubts more offers will come until the Justice Department gives some indication of how it views the burgeoning number of airline mergers.

Last week, AirTran made an unsolicited bid for Midwest Airlines. And United is said to be in early merger talks with Continental.