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Doug Parker (LCC) On M&A  
User currently offlineBreaker1011 From United States of America, joined Nov 2007, 938 posts, RR: 2
Posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2387 times:

http://www.thestreet.com/_iwon/s/us-...10400299.html??cf=WSIWON1111051500

I thought this article was fairly interesting. One subject in particular has been discussed a few times but not in too much detail. Parker is still tossing around the failed $10B bid for DL, and citing DL's existing market cap (~$4B these days) as evidence of a bad-decision on the part of DL's creditor committee. I'm not an expert on the markets - so here's my question for the gurus: Is this sour grapes from someone still standing at the ballroom door looking for a date to dominate, or is Parker's criticism valid today?

My logic flows like this - LCC is worth about $1B right now, down from almost 4x that back during it's bid for DL. Assuming that the resulting carrier would be just as smacked with oil and economic uncertainty as the two carriers alone today are, and also assuming that the combination would have produced some cost savings and cutback of redundant capacity - is it too simple to say that a successful LCC+DL would be worth about $5.5B today, maybe less given the debt load that would have been incured? If that's the case, why does he continue to draw attention to the value of his $10B bid, composed of mostly LCC stock, and call it a bad decision?

Looking forward to your thoughts - thanks in advance!


Life's tough. It's even tougher if you're stupid. J. Wayne
18 replies: All unread, jump to last
 
User currently offlineDeltaL1011man From United States of America, joined Sep 2005, 9255 posts, RR: 14
Reply 1, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2354 times:



Quoting Breaker1011 (Thread starter):

My logic flows like this - LCC is worth about $1B right now, down from almost 4x that back during it's bid for DL. Assuming that the resulting carrier would be just as smacked with oil and economic uncertainty as the two carriers alone today are, and also assuming that the combination would have produced some cost savings and cutback of redundant capacity - is it too simple to say that a successful LCC+DL would be worth about $5.5B today, maybe less given the debt load that would have been incured? If that's the case, why does he continue to draw attention to the value of his $10B bid, composed of mostly LCC stock, and call it a bad decision?

he is still pissy because A) he failed and come on who likes to fail? and B)its almost friday night DL,NW,CO,UA are all talkin to each other and it look like AA will be missing this one so he will have to go alone and again who wants that?



yep.
User currently offlineEvilForce From , joined Dec 1969, posts, RR:
Reply 2, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2342 times:

USAirways offered $5 billion in cash. It added another $ 5.2 billion in stocks. So yes, it would have been better to cash out. 1 year later their company is worth less than the cash portion of the US offer.

User currently offlineBreaker1011 From United States of America, joined Nov 2007, 938 posts, RR: 2
Reply 3, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2330 times:

I guess my point is this - Doug Parker isn't an idiot. If my logic above is truly correct, then he'd be smart enough to stop drawing attention to the failure, as the combined airline wouldn't be much better off today, and thus creditors would still be unhappy with their resultant investment value.

So - me doth thinks my logic is flawed (that, or Doug really is an egomaniac) - and I'd like to understand the right way to look at that equity situation.



Life's tough. It's even tougher if you're stupid. J. Wayne
User currently offlineDartland From United States of America, joined Apr 2005, 643 posts, RR: 2
Reply 4, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2317 times:
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Quoting Breaker1011 (Thread starter):
Assuming that the resulting carrier would be just as smacked with oil and economic uncertainty as the two carriers alone today are, and also assuming that the combination would have produced some cost savings and cutback of redundant capacity - is it too simple to say that a successful LCC+DL would be worth about $5.5B today

What cost savings? Labor savings? no. Fuel savings? no. Sure, some overhead savings and ground ops savings -- but neither of those are that big compared to labor or fuel. I say a combination is worth less than the sum of values today -- which is why he's right to say DL should have sold to US, but of course makes him look like a complete idiot as the one who offered so much for it.

Parker still has separate unions and fleets for airlines he merged 2.5 years ago. Why is anyone listening to him talk about further consolidation? In fact, they all should be looking his way and asking themselves why they'd ever get into this game of merging. Two unprofitable airline operations does not equal one profitable airline operation.


User currently offlineBreaker1011 From United States of America, joined Nov 2007, 938 posts, RR: 2
Reply 5, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2317 times:



Quoting EvilForce (Reply 2):
USAirways offered $5 billion in cash. It added another $ 5.2 billion in stocks. So yes, it would have been better to cash out. 1 year later their company is worth less than the cash portion of the US offer.

Evil - good point. But the cash was planned to be borrowed from Citi and Morgan Stanley wasn't it? It wasn't existing liquidity. So net net, that $5B portion would have eroded the balance sheet further considering interest, essentially giving the creditors $5B in some cash but then perhaps even less that my estimated $5.5B in the value of the LCC stock.



Life's tough. It's even tougher if you're stupid. J. Wayne
User currently offlineGigneil From United States of America, joined Nov 2002, 16347 posts, RR: 85
Reply 6, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2298 times:

I think a combined US and DL would be worth more today than the other majors... they would be more competitive, larger, and have more driving market forces. Not sure it would be worth $10 to $11b, but it would be worth much more.

That being said, this article does little to say what Doug Parker is doing with his airline, today. A US/DL merger didn't happen, so what will?

A US/UA merger now offers nothing but confusion. Sure, they will get key New York and Boston presence, as well as a the invaluable Charlotte hub. They will move connecting power from PHL to IAD so that PHL will cease to suck from an operational perspective. Phoenix and Las Vegas are useless to United. What the hell will they do, launch a massive Ted operation from LAS? Having LAS, PHX, and LAX within striking distance of each other.

Even more amusing is this article's different context of Tilton's quote:

Quote:
United declined to comment Thursday. CEO Glenn Tilton was asked Tuesday whether the current alliance factors into consolidation talks. "You can assume that absolutely everything goes into the mix of consideration," he responded.

A.net responded to that earlier as Tilton saying that it means he'll leave Star Alliance. This article implies that it means that staying in the alliance is a consideration. Goes both ways.


I disagree that CO is key to Skyteam. They and DL are in vigorous competition in the New York market, and a combined CO/NW will grow JFK vigorously. CO needs to be free of that so that they can compete without answering to the alliance chiefs who may be inclined to reduce competition amongst their members going forward.

As has been said, these alliances are no bullshit. They are serious contractual obligations, not marketing fluff. Our government will SEVERELY curtail ATI grants to concentrated alliance presence in markets.

NS


User currently offlineGigneil From United States of America, joined Nov 2002, 16347 posts, RR: 85
Reply 7, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2300 times:



Quoting Breaker1011 (Reply 5):
So net net, that $5B portion would have eroded the balance sheet further considering interest, essentially giving the creditors $5B in some cash but then perhaps even less that my estimated $5.5B in the value of the LCC stock.

Many of the existing DL creditors would have taken the money and run... it would be the US shareholders today holding that bag.

NS


User currently offlineBreaker1011 From United States of America, joined Nov 2007, 938 posts, RR: 2
Reply 8, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2290 times:



Quoting Gigneil (Reply 6):
That being said, this article does little to say what Doug Parker is doing with his airline, today. A US/DL merger didn't happen, so what will?

Great post - interesting thoughts. I appreciate it!



Life's tough. It's even tougher if you're stupid. J. Wayne
User currently offlineDeltaL1011man From United States of America, joined Sep 2005, 9255 posts, RR: 14
Reply 9, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2283 times:



Quoting Gigneil (Reply 6):

I disagree that CO is key to Skyteam. They and DL are in vigorous competition in the New York market, and a combined CO/NW will grow JFK vigorously. CO needs to be free of that so that they can compete without answering to the alliance chiefs who may be inclined to reduce competition amongst their members going forward.

ok to things i see wrong JFK is now a slot airport so A) were can they get the slots? and B) why would they move into JFK when they have EWR right down the road?
but i do agree CO inst a key to Sky



yep.
User currently offlineDL Widget Head From United States of America, joined Apr 2000, 2082 posts, RR: 5
Reply 10, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2272 times:



Quoting Breaker1011 (Thread starter):
I'm not an expert on the markets - so here's my question for the gurus: Is this sour grapes from someone still standing at the ballroom door looking for a date to dominate, or is Parker's criticism valid today?

I think he's a bitter, bitter man. I believe he missed his one chance to reign over a mega carrier and now, owing to his inability to successfully consummate a merger of two smaller airlines, and the fact that US's stock price has tanked, and the value of US is in the toilet, yes, I think he does bear a grudge against DL. Hell, even his own employees en masse banded together yesterday (see link below) in protest to what Doug is doing to their company. I honestly feel sorry for these folks. The thing that probably makes Doug the most petulant about his situation is that, at this point, even if they can attract a merger partner, he will most likely not be the one in charge; another blow to his massive ego.

http://biz.yahoo.com/prnews/080123/clw059.html?.v=101

"US Airways management failed to work with labor from the beginning of this merger and has continued this practice for nearly three years, leading us to where we are now-a once promising airline with a plummeting stock price, consistent rankings at the bottom of the industry, and disgruntled employees. Instead of addressing the myriad of problems, management has done nothing but issue excuses to our investors, passengers and employees. The lack of leadership and know-how displayed by this management team is appalling and has forced us to take action."


User currently offlineBreaker1011 From United States of America, joined Nov 2007, 938 posts, RR: 2
Reply 11, posted (6 years 5 months 2 weeks 5 days 14 hours ago) and read 2251 times:



Quoting DL Widget Head (Reply 10):

WOW. THAT is an interesting article and development at US. If I were a CEO I'd not be sleeping alot if my employees were that unhappy. I do feel for them. Both the HP and the US sides of the issue.



Life's tough. It's even tougher if you're stupid. J. Wayne
User currently offlineEvilForce From , joined Dec 1969, posts, RR:
Reply 12, posted (6 years 5 months 2 weeks 5 days 13 hours ago) and read 2226 times:



Quoting Breaker1011 (Reply 5):
Evil - good point. But the cash was planned to be borrowed from Citi and Morgan Stanley wasn't it? It wasn't existing liquidity. So net net, that $5B portion would have eroded the balance sheet further considering interest, essentially giving the creditors $5B in some cash but then perhaps even less that my estimated $5.5B in the value of the LCC stock.

There was a $1.65 billion annual costs savings by merging the companies. They would have reduced a number of redundancies.

Even now USAirways has $ 3.0 billion in cash on hand.

The other thing you have to always keep in mind is the opportunity cost of your capital. If you have $1 billion tied up in a companies stock, what could you have been doing with that $1 billion in your own business? What equipment could you have purchased? What product could you launch or support more? You really need to be making a 20% return or better with that money.


User currently offlineEvilForce From , joined Dec 1969, posts, RR:
Reply 13, posted (6 years 5 months 2 weeks 5 days 13 hours ago) and read 2204 times:

Here was the PDF download of the first offer for Delta:

http://www.usairways.com/common/reso...ressroom/investor_presentation.pdf

Keep in mind that the creditors quite likely could have tweaked the offer further still, by increasing the cash portion of the offer to $ 6 billion or a slight increase in the total offer.


User currently offlineGigneil From United States of America, joined Nov 2002, 16347 posts, RR: 85
Reply 14, posted (6 years 5 months 2 weeks 5 days 13 hours ago) and read 2179 times:



Quoting DeltaL1011man (Reply 9):
ok to things i see wrong JFK is now a slot airport so A) were can they get the slots? and B) why would they move into JFK when they have EWR right down the road?

Clearly, I didn't mean to say CO/NW. I meant DL/NW.

NS


User currently offlinePITIngres From United States of America, joined Dec 2007, 1114 posts, RR: 13
Reply 15, posted (6 years 5 months 2 weeks 5 days 13 hours ago) and read 2140 times:



Quoting EvilForce (Reply 12):
There was a $1.65 billion annual costs savings by merging the companies.

On paper. Paper is easy. People are hard. Given that the delta people didn't want to be part of US, I suspect it wouldn't have worked. The numbers types often forget that a company's dollar value is created by its people.

I dunno if US+DL would have worked. Nobody can know unless there's an alternate universe where it happened. Given that US and HP still aren't really 100% merged, my guess is that any savings would have been swallowed up by costs and reduced revenue.

So, my vote is on the sour grapes side. I think Dougie is living in Wolkenkuckucksheim. Obviously that's just my opinion.



Fly, you fools! Fly!
User currently offlineEvilForce From , joined Dec 1969, posts, RR:
Reply 16, posted (6 years 5 months 2 weeks 5 days 13 hours ago) and read 2103 times:



Quoting PITIngres (Reply 15):
On paper. Paper is easy. People are hard. Given that the delta people didn't want to be part of US, I suspect it wouldn't have worked. The numbers types often forget that a company's dollar value is created by its people.

I wasn't stating whether or not these saving would have come about or not. I was answering someone's question on the money that was needed to pay for the cash transaction portion of the offer.

In any event we can't say we much certainty how much the combined US/DL shares would be worth today. But there is simply no denying that the investors would have been in a better position had they cashed out. The cash portion was at least $ 5 billion. They would have also had millions of shares of the combined entity.

Given where the DL shares are trading now the stocks need to double at an absolute minimum just to get back to the level that a cash offer from US was worth, and a small dollar value to the stock.


User currently offlinePITIngres From United States of America, joined Dec 2007, 1114 posts, RR: 13
Reply 17, posted (6 years 5 months 2 weeks 5 days 12 hours ago) and read 2072 times:



Quoting EvilForce (Reply 16):
But there is simply no denying that the investors would have been in a better position had they cashed out.

Quickly before anyone else caught on. I'll 100% agree with that... Stock valuation is a game better play by other people than myself.



Fly, you fools! Fly!
User currently offlineDeltaL1011man From United States of America, joined Sep 2005, 9255 posts, RR: 14
Reply 18, posted (6 years 5 months 2 weeks 5 days 11 hours ago) and read 1966 times:



Quoting Gigneil (Reply 14):
Clearly, I didn't mean to say CO/NW. I meant DL/NW.

ok just checking i have heard comments like that before on here



yep.
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