Delta Air Lines Inc., the third-largest U.S. carrier, is a possible buyout target at a price of $61 a share in cash, Business Week reported in its ``Inside Wall Street'' column.
A buyout group and two former airline executives are preparing to make a cash bid of $7.5 billion for Delta, the magazine said, citing unidentified ``industry insiders.'' The buyout group has been talking with a couple of banks to secure financing for the transaction, the magazine said.
``It's a speculative story and we really can't comment on rumors,'' said Delta spokesman Russ Williams. The company's shares, which fell 50 cents to 45.25 today, have fallen 14 percent over the past year.
Delta and other major airlines engaged in acquisition discussions following a May 24 announcement from UAL Corp., parent to United Airlines, that it agreed to buy US Airways Group Inc. for $11.6 billion. Subsequently, Delta Chief Executive Leo Mullin said his airline has studied the possibility of buying Continental Airlines Inc., which it also pursued three years ago.
Meanwhile, some airline executives, including those at Continental, have suggested airline stocks are so cheap it might be the right time for taking an airline private. Most of the stocks in the group are trading at less than 8 times earnings.
UAL agreed to pay $60 a share for US Airways, or more than twice the value of the shares on the day before the acquisition proposal was announced. US Airways shares closed at 31.38 today because of investor concerns about securing government approvals for the proposed merger.
Based on earnings and assets, Delta shares could rise to $83 in a year, Business Week said, citing Deutsche Banc Alex. Brown analyst Susan Donofrio. Atlanta-based Delta has a price-earnings ratio of 5.3, based on an estimated $8 a share in earnings in the year ending June 30, 2001, the magazine said.
Mullin told analysts last week at a breakfast meeting that Delta ``is ready to be aggressive with its own merger proposals, should this prove necessary,'' according to a report from Donofrio.
Leveraged buyouts in the airline industry have been very difficult in the past and only one at Northwest Airlines Corp. was successful because that company, unlike other airlines, had very little debt, said CIBC Oppenheimer analyst Julius Maldutis. It would be difficult to raise funds for an airline transaction of that size, he said.