Norfolk Southern Offer Declined; Piedmont Puts Itself on the Block
Piedmont Aviation put itself on the auction block late Thursday after declining a takeover offer from Norfolk Southern worth nearly $1 billion.
After meeting for more than six hours at company headquarters in Winston-Salem, N.C., the airline’s board announced that a special committee of outside directors, which earlier had recommended that Norfolk Southern’s $65-per-share offer be accepted, “would withdraw its recommendation.”
The action came in response to a counterproposal made Wednesday by USAir Group of Washington. USAir, like Piedmont, is one of the few medium-sized airlines that has not been acquired recently by a larger carrier. USAir’s bid, the third it has made for Piedmont, was for $1.6 billion and involved the payment of some stock. But Piedmont has indicated that it prefers an all-cash deal. Norfolk Southern already owns about 19% of Piedmont’s stock.
Piedmont’s board said that in view of USAir’s sweetened proposal, the board had “determined to hold discussions with all interested third parties which may be interested in a business combination with Piedmont.”
Piedmont spokesman Donald McGuire said he was unaware of any other offers having been received as of Thursday evening.
The latest USAir bid is worth $1.36 billion, based on Piedmont’s 18.86 million common shares outstanding. But if the deal is calculated on the basis of the airline’s fully diluted shares--which include all instruments convertible into common stock--it would be valued at about $1.6 billion.
USAir is offering $71 a share in cash for 50% of Piedmont’s stock and between 1.55 and 1.9 USAir shares for each of the remaining Piedmont shares.
Either bid would be the most ever paid for an airline, possibly twice as much as the $884-million acquisition of Republic Airlines by Northwest Airlines last year.
“(Opening itself for bidding) is just the kind of step that I expected,” said Louis Marckesano, airline analyst with the Philadelphia-based brokerage house Janney Montgomery Scott. “They did not accept the Norfolk Southern bid to see if anything else materialized. If not, they’ll go with USAir.”
On the New York Stock Exchange, Piedmont shares rose $3.875 Thursday to close at $69.75. Nearly 1.6 million shares were traded.
Piedmont has been one of the fastest-growing, most profitable airlines in the country. Its revenue has grown at an annual rate of 28%, and its earnings have grown at a compound annual rate of 35% since the industry was deregulated in 1979.
Since the deregulation free-for-all began, Piedmont has grown from a regional carrier operating 46 airplanes in the mid-Atlantic states to a major airline.
PIEDMONT AVIATION AT A GLANCE
Piedmont Airlines generates about 92% of company’s total revenues. Its general aviation subsidiary accounts for the remaining 8% under trade names Piedmont Aviation and Piedmont’s Piper Sales. The company has headquarters in Winston-Salem, N.C.
Year ended Dec. 31 1986 1985 1984 Sales (billions) $1.9 $1.5 $1.3 Net income (millions) 72.3 66.7 58.2
Assets (‘85) $1.5 billion
Employees 16,000
Shares outstanding 11.3 million
12-month price range $35.75-$65.375
Tuesday close (NYSE) $65.375, up $6.25
