Tuesday, November 21, 2006

The dogfight for change(delta)

In the prevailing indications for a merger wave in US, in an industry which is struggling with bankrupcy and high exit barriers, the only means of upliftment seems to be to acheive cost synergies through consolidation. The key is to sleep with the enemy, which means alliance with companies competing for common infrastructure and customers. One more thing here is to realize that most of the past hostile takovers, which constitute 3% of total M&A activity, were not successful in acheiving the synergies because of numerous reasons.

With his $8.67 billion hostile bid last week for Delta, the CEO Doug Parker is proposing to add yet another company to the two he's already having as a consequence of his America West Airlines acquiring US Airways late last year. By merging with the much-larger Atlanta carrier Delta as it emerges from bankruptcy court, US Airways, would become the largest U.S. airline in terms of passenger traffic, a huge leap from its No. 6 ranking right now.

The offered premium to buy Delta is around the magic figure of 25%, which is expected to go over 40%, if the bid turns out to be successful. The main weapon for the acquirer US airways ...is money. On US airways part, it will be more like bargaining for a second hand car. But the defence by the target can much more sophisticated like greenmail, financial defensive measures, Pacman defence, white knight, white squire, supermajority amendments, poison put & pills, silver and tin parachutes etc etc....afterall hunting a duck is different from hunting a rhino.


Post a Comment

<< Home

More blogs about investment banking.

How am I doing?