Delta Airlines will be entering merger talks with UA and NWA.
From Bloomberg.com
*Jan. 10 (Bloomberg) – Northwest Airlines Corp. rose 32 percent, leading U.S. airline stocks higher after the Wall Street Journal reported that the fifth-largest U.S. carrier could be a merger partner for Delta Air Lines Inc.
Delta’s board will be asked tomorrow to permit the start of talks with Northwest and UAL Corp., the parent of United Airlines, with the goal of ultimately choosing between them, the Journal reported, citing people familiar with the matter.
A tie-up among United, Delta or Northwest would vault the combined company past AMR Corp.'s American Airlines as the world’s largest airline, based on passenger traffic.
Merger speculation helped send Delta up 18 percent, while UAL jumped 24 percent. Other carriers also rose on the notion that a merger would trigger more combinations and reduce U.S. capacity. The Bloomberg U.S. Airlines Index rose 14 percent, the biggest one-day gain in more than eight years.
Northwest’s rise has to do with some of the expectations of a potential merger moving back into the sector, and I think Northwest is a valuable target,'' Brian Nelson, a Morningstar Inc. analyst in Chicago, said in a telephone interview. Delta is probably the best fit.‘’
Betsy Talton, a spokeswoman for Atlanta-based Delta, declined to comment on possible mergers, the board’s meeting dates or agenda, or progress by the airline’s merger-review panel. Spokeswomen for UAL and Eagan, Minnesota-based Northwest also declined comment.
Delta Pilots Meet
Northwest and Delta both emerged from bankruptcy last year, as did UAL in 2006. Delta’s pilots union said yesterday that the third-largest U.S. carrier ``may soon be involved’’ in a merger and convened their executive council to consider options. Lee Moak, head of the union, declined to comment further today.
Delta formed a board committee in November to review possible mergers after hedge fund and investor Pardus Capital Management LP wrote it suggesting a combination with Chicago- based UAL. Delta, which has hired legal and financial advisers, said as far back as October that it was considering merger options and asset sales, and planned to be an acquirer.
``A combination with a large carrier could provide network benefits and cost and revenue synergy possibilities, but would face regulatory hurdles and be complex,‘’ Jim Corridore, a New York-based Standard & Poor’s analyst, said in a report today.
Delta’s appointment of Richard Anderson as its new chief executive officer in August, to succeed retiring Gerald Grinstein, fueled speculation about a tie-up with Northwest, where Anderson was formerly CEO.
Mergers, Asset Sales
Amid shareholder pressure, most U.S. carriers have said in recent months they’re considering mergers or asset sales as a way to boost sagging stock prices. A reduction in domestic capacity also would allow carriers to trim costs and boost fares.
United, the world’s second-largest carrier, would be able to save money and expand if it merged with Delta, according to Pardus, which also holds UAL shares.
Glenn Tilton, UAL’s chief executive officer, has advocated consolidation in the industry since 2005 as a way to help airlines cut capacity and costs. Jet fuel, now the biggest expense for most carriers, has surged 65 percent in the past year, threatening airline profits.
Consolidation `All But Assured’
JPMorgan Chase & Co. analyst Jamie Baker raised his rating on UAL to overweight'' yesterday, saying the stock is now cheap and adding that the carrier's participation in consolidation is all but assured.‘’
Airlines consistently shed 40 percent heading into recessions, only to rally 70 percent from that point,'' Baker wrote in a research note today. We cannot overstate the importance of buying airline equities when all hope appears lost.‘’
The Bloomberg airlines index increased the most since June 14, 1999, as 15 of its 16 members gained. The index dropped 36 percent last year and was down another 14 percent this year before today.
Northwest’s shares surged $3.84 to $15.85 at 4:28 p.m. in New York Stock Exchange composite trading, the biggest increase since it exited bankruptcy on May 31. Before today, Northwest’s stock had lost more than half of its value in the last eight months.
Delta climbed $2.46 to $15.98, while UAL jumped $6.16 to $32.19 in Nasdaq Stock Market composite trading.
AMR rose $1.57, or 13 percent, to $13.41; Continental Airlines Inc. climbed $4.45, or 24 percent, to $23.25; and US Airways Group Inc. rose $1.66, or 15 percent, to $12.55. US Airways lost a hostile takeover bid for Delta last year. *
) or will just stay a stand alone.