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Saturday February 3, 1:19 am Eastern Time
Delta Airlines talking merger with Continental - Post
WASHINGTON, Feb 3 (Reuters) - Delta Air Lines Inc (NYSE AL - news) and Continental Airlines (NYSE:CAL - news) are in very early talks about a possible merger in which Continental would acquire the much larger Delta, the Washington Post reported on Saturday.
The negotiations ``are very informal and they're still in the very early stage,'' a source told the Post.
The newspaper reported that both sides are exploring options should the federal government approve a plan by No. 2 American Airlines (NYSE:AMR - news) to buy financially ailing Trans World Airlines (AMEX:TWA - news) and the proposed merger of No. 1 United Airlines (NYSE:UAL - news) and US Airways
The Continental-Delta talks have focused on the smaller company possibly acquiring the larger one because of a complicating role played by Northwest Airlines (NasdaqNM:NWAC - news) , the Post said.
Northwest has veto power over any takeover of Continental by a third airline. The veto control is the last vestige of Northwest's former controlling ownership of Continental.
But Delta and Continental do not believe the veto power applies if Continental is the acquiring airline. It was not clear who would control the new airline if Continental were to acquire Delta, the Post said.
Neither Delta nor Continental would comment on the talks.
The Continental and Delta talks began last week, the Post reported. The newspaper said Delta Chairman Leo Mullin met with Northwest Chairman Gary Wilson on Jan. 26 to explore Wilson's reaction to a Delta-Continental merger and whether Northwest would try to veto a Delta bid for Continental.
Wilson told Mullin that Northwest was not interested in waiving its veto power under any circumstances, said a Post source with knowledge of the meeting. ``The meeting was to gauge each other's interests. The ball is now in Delta's court,'' the source said.
Sources told the Post that Northwest officials are confident they can block a merger even if Continental initiates the deal.
If efforts to link up with Continental fail, sources said, No. 3 Delta would seek some form of alliance or merger with Northwest, a less preferable option.
A Continental-Delta merger would give the combined airline 26.7 percent of the airline passenger market. A merger of Delta and Northwest would capture 29.3 percent of the market.
American and United would control about 50 percent of the domestic market if their deals went through.