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To Kill A WN/FL Merger - At The Last Moment?  
User currently offlineGoblin211 From United States of America, joined Jun 2010, 1209 posts, RR: 0
Posted (4 years 1 month 4 weeks 1 day 18 hours ago) and read 9088 times:

Is it possible for WN and FL to cancel at the last minute or is there a contract signed and legal penalties would occur if it canceled? Have there been such cases? I think Delta and Continental was one but I'm not sure. Thanks in advance.


From the airport with love
14 replies: All unread, jump to last
 
User currently offlineGlobalCabotage From United States of America, joined Nov 2009, 605 posts, RR: 0
Reply 1, posted (4 years 1 month 4 weeks 1 day 18 hours ago) and read 8993 times:

I'm sure WN and FL have clauses in there merger agreement for significant (multiple millions of dollars) for breach of the merger agreement.

User currently offlineWROORD From United States of America, joined Mar 2009, 965 posts, RR: 0
Reply 2, posted (4 years 1 month 4 weeks 1 day 17 hours ago) and read 8942 times:

Unfortunately people who approve mergers care only about their own interests, so very little hope to stop it especially once all unions have approve them.

User currently offlinedfambro From United States of America, joined Nov 2009, 343 posts, RR: 0
Reply 3, posted (4 years 1 month 4 weeks 1 day 17 hours ago) and read 8861 times:

Buyers (like WN) usually want a break-up fee so that if they pull out so that they have clarity on the cost of backing out of the deal. The buyee (FL) sometimes does not want the buyer to have a break-up fee, as then they can sue for the full value of the deal upon a breach. Sometimes the buyee does want one, if they feel that's a better way to maximize their financial recovery if the buyer pulls out. It's a heavily negotiated term, and varies widely between deals depending on the leverage of the two parties in the negotiation.

Generally the buyee has no way to pull out of the deal except in extraordinary circumstances (breach of contract, material adverse events for the buyer, etc.).


User currently offlineItalianFlyer From United States of America, joined Nov 2007, 1099 posts, RR: 2
Reply 4, posted (4 years 1 month 4 weeks 1 day 17 hours ago) and read 8724 times:

UAL had to pay US $50 million when they aborted the merger proposal in 2001.

User currently offlineairportguy1971 From United States of America, joined Aug 2003, 355 posts, RR: 1
Reply 5, posted (4 years 1 month 4 weeks 1 day 13 hours ago) and read 8386 times:

Frontier was to merge with WestPac in, what was it, 1997? WestPac was to be the surviving entity. F9 got a look at the books and ran like Daniel Boone, when he saw the bear, which was larger than he... Sam Aadoms saved one of those airlines by doing so. (Both would be history today if he hadn't) I don't know if F9 had to pay for leaving WestPac at the alter, but it is a precedent...

Mariner surely has a better recolection of those events than I do at any rate...


User currently offlinejustplanenutz From United States of America, joined Feb 2006, 546 posts, RR: 1
Reply 6, posted (4 years 1 month 4 weeks 1 day 9 hours ago) and read 8090 times:

Other folks can bid for FL, but there is a $39 million breakup fee to WN if their deal falls through.

User currently offlinemariner From New Zealand, joined Nov 2001, 25569 posts, RR: 86
Reply 7, posted (4 years 1 month 4 weeks 1 day 9 hours ago) and read 8033 times:
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Quoting airportguy1971 (Reply 5):
Mariner surely has a better recolection of those events than I do at any rate...

You have the basics of it down.

I don't remember a break-up fee, and it wouldn't have been large if there had been one. Both airlines were in fairly dire financial circumstances and walking away from it almost killed Frontier.

It is one of those ironies of history that what saved Frontier then was a $5 million loan from Wexford Capital who later became Republic.

Quoting Goblin211 (Thread starter):
Is it possible for WN and FL to cancel at the last minute or is there a contract signed and legal penalties would occur if it canceled?

Yes, it is possible - see above - but it is extremely unlikely. Contrary to the popular opinion, this deal has been in the works for some time - CEO Kelly first flagged it in April - and Southwest has had ample opportunity to go through the Airtran books.

If one the regulatory bodies - the DOJ - disallowed it then it wouldn't go ahead, and yes, without knowing the agreement I would guess there would be a break up fee.

But I can't think why the DOJ would disallow it, although they or the DOT may ask for some changes or divestitures. I can't see any major red flags, although there may be a couple of minor ones, so I expect it will probably go through.

mariner



aeternum nauta
User currently offlinePyrex From Portugal, joined Aug 2005, 4039 posts, RR: 28
Reply 8, posted (4 years 1 month 4 weeks 1 day 6 hours ago) and read 7767 times:

Quoting dfambro (Reply 3):
Generally the buyee has no way to pull out of the deal except in extraordinary circumstances (breach of contract, material adverse events for the buyer, etc.).

Of course there are the big ones - shareholder and regulatory approval. If those don't come around the deal is off, and either party would be insane to agree to a break-up fee in those instances.



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User currently offlineQANTAS747-438 From United States of America, joined Jan 2001, 1983 posts, RR: 2
Reply 9, posted (4 years 1 month 4 weeks 23 hours ago) and read 5683 times:

Quoting GlobalCabotage (Reply 1):
I'm sure WN and FL have clauses in there merger agreement for significant (multiple millions of dollars) for breach of the merger agreement.


It's $39 million if the deal were to be terminated. Here's the quote from Bob Jordan:

(If FL were to get a better offer...)
"There are the normal provisions for the process of a superior proposal. So if AirTran were to receive a superior proposal, they cannot solicit but if they received one, there is a process to evaluate that. Southwest Airlines has a timeframe to respond and there are breakup fees and it’s a $39 million breakup fee in that case."

[Edited 2010-09-30 12:17:26]


My posts/replies are strictly my opinion and not that of any company, organization, or Southwest Airlines.
User currently offlineflashmeister From United States of America, joined Apr 2000, 2903 posts, RR: 6
Reply 10, posted (4 years 1 month 4 weeks 20 hours ago) and read 4335 times:
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Quoting airportguy1971 (Reply 5):
F9 got a look at the books and ran like Daniel Boone, when he saw the bear, which was larger than he... Sam Aadoms saved one of those airlines by doing so.

That's definitely what happened without question, but doing a little digging around, I found an old FlightGlobal article where WestPac spun the merger termination as being due to cultural differences -- things like employee morale and scheduling. This in the middle of WestPac's very public basket case period. LOL. I suppose that it's the truth, if the cultural issue at hand is any hope of making a profit, ever.  
Quoting mariner (Reply 7):
I don't remember a break-up fee, and it wouldn't have been large if there had been one.

Per this SEC filing from 1997, if either party walked away from the merger, it owed the other $4 million, although considering the material change in WestPac's ability to participate in the merger following Frontier's examination of their books, I'd be surprised if Frontier actually paid it. They probably had a pretty good case to tell WestPac to jump in a lake.


User currently offlinemariner From New Zealand, joined Nov 2001, 25569 posts, RR: 86
Reply 11, posted (4 years 1 month 4 weeks 19 hours ago) and read 3683 times:
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Quoting flashmeister (Reply 10):
Per this SEC filing from 1997, if either party walked away from the merger, it owed the other $4 million, although considering the material change in WestPac's ability to participate in the merger following Frontier's examination of their books, I'd be surprised if Frontier actually paid it. They probably had a pretty good case to tell WestPac to jump in a lake.

Thanks for that.

Maybe that's why I don't remember it, it was quite small, comparatively. I surely don't think it was ever paid - I'm not even sure that Frontier was listed as a debtor of Westpac at the end, but it's a long time ago and I haven't checked recently.

mariner



aeternum nauta
User currently offlinejustloveplanes From United States of America, joined Jul 2004, 1063 posts, RR: 1
Reply 12, posted (4 years 1 month 4 weeks 18 hours ago) and read 3316 times:

Quoting justplanenutz (Reply 6):
Other folks can bid for FL, but there is a $39 million breakup fee to WN if their deal falls through.

So the BOD I guess can obligate the shareholders for $39 million. I guess they do that everyday when they buy a 737....


User currently offlinetugger From United States of America, joined Apr 2006, 5738 posts, RR: 10
Reply 13, posted (4 years 1 month 4 weeks 17 hours ago) and read 3256 times:

Quoting mariner (Reply 7):
Yes, it is possible - see above - but it is extremely unlikely. Contrary to the popular opinion, this deal has been in the works for some time - CEO Kelly first flagged it in April - and Southwest has had ample opportunity to go through the Airtran books.

I remember it a little, but can you remind me of what Gary said in April or perhaps a link to the thread? There has been a lot of talk about it (and of other rumored WN targets) for awhile. I even put my name on the line for one of the rumors that it was imminent back in 2008 but badly missed the time frame. Oh well.

Tugg



I don’t know that I am unafraid to be myself, but it is hard to be somebody else. -W. Shatner
User currently offlinemariner From New Zealand, joined Nov 2001, 25569 posts, RR: 86
Reply 14, posted (4 years 1 month 4 weeks 17 hours ago) and read 3174 times:
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Quoting tugger (Reply 13):
I remember it a little, but can you remind me of what Gary said in April or perhaps a link to the thread?

I can't remember where I read it - I read a lot of stuff - but I do remember reading it, and this reminded me that I had:

http://www.poten.com/NewsDetails.aspx?id=10670614

"Sept. 28--When Southwest Airlines chief Gary Kelly picked up the telephone in April to call his counterpart at AirTran Airways, he was dealing with a number of realities."

It came up when Frontier/Republic ended the FF partnership with Airtran, if that's any help, someone referred to it then - or guessed accurately.

mariner



aeternum nauta
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