Modigliani and Miller's principles hold here for DL
: They are robbing Peter (the refinery) to pay Paul (the airline) and it is a zero sum game, ie the sum of all future cash flows are unaffected. JetA is a commodity, so it is not special and there are no presumed arbitrage opportunities in the market. Based on this, there's no change to the market value of the firm, so DL is spending money to acquire an asset that will not provide any value to the corporation
It seems to me that the "DL MBAs" are forgetting a lot of their academic training. Refining is a very very tough and cyclical business. If the refinery is properly valued and not selling at a steep discount, I do not see how DL
could generate any value for its shareholders. The only value I can see is the $30M subsidy that the state is providing; however, I wouldn't be surprised if the other refineries operating in PA throw a fit and demand the same support from the state.
[Edited 2012-04-30 16:09:57]
We will ride this thunderbird, silver shadows on the earth, a thousand leagues away our land of birth... -Captain Bruce