Delta’s Creditors Reject US Airways

By Marilyn Adams

The proposed merger of Delta Air Lines and US Airways fell apart Wednesday when Delta’s bankruptcy creditors rejected US Airways’ $10 billion takeover offer.

The committee representing Delta creditors formally rejected the hostile takeover offer and sided with Delta, the USA’s No.3 airline, on its plan to remain independent. Following the announcement, US Airways, which had pursued the creditors since Nov. 15, withdrew its offer.

The decision appears to dampen much of the talk of an impending merger mania in the airline industry, which only recently has returned to profitability after being slammed by terrorism and recession in 2001. Wall Street analyst Ray Neidl of Calyon Securities predicted airlines would not see anymore significant deals for a year.

In the end, the offer of $10 billion in stock and cash did not outweigh the perceived risks. US Airways is a major Delta competitor in the East, and the combination would have created the USA’s biggest domestic carrier, eclipsing American Airlines.

Critics of the merger said the Department of Justice could spend months reviewing a pending deal and ultimately block it on antitrust grounds. Delta, meanwhile, told creditors its plan calls for a speedy exit from bankruptcy and that the company would be worth $9.4 billion to $12 billion as a stand-alone airline.

Among the top creditors are Delta’s pilots union; the Pension Benefit Guaranty Corp., which assumed responsibility for the pilots’ pension plan; Boeing; Coca-Cola; and Bank of New York.

“This is a proud day for the thousands of Delta people, customers, communities, civic leaders and others who stood up for our stand-alone plan,” Delta CEO Gerald Grinstein said in a statement.

The creditors’ decision was a major victory for Grinstein, who opposed the takeover bid from the outset. Atlanta-based Delta rallied employees, customers and members of Congress. And Delta made major concessions to the committee to fend off the merger.

Delta executives, for example, agreed to a small equity stake in the reorganized company of about 4%, leaving more for creditors. Creditors also won the right to name most directors on the new board.

US Airways CEO Doug Parker was sharply critical of the decision. He said in a statement the committee was “ignoring its fiduciary obligation to those creditors” by choosing to back Delta because his plan was worth more.

With the takeover battle behind it, Delta will file a revised plan of reorganization with the bankruptcy court this week. It plans to exit bankruptcy in the spring. On Tuesday, it announced it had landed $2.5 billion in exit financing from six major lenders. (c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.