Marvin Davis, the wealthy Los Angeles oilman and real estate mogul, on Thursday offered $2.6 billion for the parent of Northwest Airlines, the largest U.S. air carrier to the northern Pacific, including Japan.
The $90-a-share offer was made two days after NWA Inc.'s board of directors turned down a buyout proposal from an unidentified group of stockholders and declared its intention to keep the firm independent.
Owns Tokyo Real Estate
The airline, which owns valuable real estate in Tokyo and operates key Pacific routes, has been viewed as a possible takeover target for several months. Last fall, the airline rejected as inadequate a $200-million offer for its Japanese real estate.
The announcement means that two of the nation’s biggest airlines--Northwest and Eastern--are both active buyout targets. On Thursday, Chicago hotel magnate Jay A. Pritzker emerged as the leading bidder for strike-bound Eastern as outgoing baseball commissioner Peter V. Ueberroth withdrew his offer. (Story in Business, Page 1.)
Davis made his cash offer in a letter to the board of directors. He told the board that he owns 3% of the company’s shares.
No Comment on Offer
NWA, based in Eagan, Minn., did not have any comment on Davis’ offer. Kevin Whalen, a spokesman for the airline, said executives had not yet reviewed Davis’ letter.
Davis did not say how he would finance the purchase of NWA, although he told the board that he was “confident that sufficient funding will be available.”
He would not have much trouble financing such a deal, said Louis A. Marckesano, an airline industry analyst with the Janney Montgomery Scott investment firm in Philadelphia. Marckesano said Davis could buy the airline for $2.6 billion without having to sell off aircraft and routes. He said that Northwest’s Japanese real estate is worth around $300 million and could be sold to partly finance a takeover.
In addition, Marckesano said, the airline is so strong financially that it could take on as much as $1 billion in debt to help pay for a buyout.
“We’ve been looking for a price in the $90 to $100 range,” Marckesano said. “This is a high enough price that the board of Northwest is going to have to give it serious consideration.”
Davis’ offer was much higher than Thursday’s closing price for NWA’s shares. The shares closed at $68.25, down 50 cents, in trading on the New York Stock Exchange. The offer was announced after the market closed.
In his letter, Davis said that he intended to keep the airline’s headquarters in its Minneapolis suburb and to retain present management. Davis emphasized that he was seeking a friendly acquisition of the airline and said that he was willing to raise his offer if “additional value in the company can be demonstrated.”
However, Davis said in his letter that he “could not sit idly by” if NWA’s board enacted any anti-takeover provisions, including setting up an employee stock ownership plan.
Companies recently have fought off unwanted takeover efforts by placing a large number of shares in the hands of employee plans. Such a defense was recently undertaken by Polaroid Corp. to escape its unwanted suitor, Shamrock Holdings Ltd.
It was expected that Northwest, led by its tight-fisted chairman, Steven G. Rothmeier, would resist any takeover attempt, and the company already has imposed an anti-takeover device.
‘Poison Pill’ Adopted
On Monday, the company adopted a “poison pill” defense, under which shareholders would be issued shares of preferred stock, in addition to their common stock, if anyone acquired 15% of the company’s shares or made an unwanted offer to buy all of the company’s stock. This makes it far more costly to buy the company.
Davis, who last year lost out in an effort to buy Lorimar Telepictures, said he decided to bid for Northwest after the earlier bid by the unidentified group that owns 4.9% of NWA stock.
He told the NWA board that he is prepared to meet “at any time” and said that his offer would expire on April 21.
Davis, 63, who made his first fortune as a Denver oilman, has experienced a lack of success in takeover bids, including efforts to buy CBS and Resorts International. He did acquire the landmark Beverly Hills Hotel in 1986 but sold it less than a year later to the sultan of Brunei.
Davis last week joined with Prudential Insurance Co. of America to buy Spectradyne Inc., the largest U.S. provider of pay-to-view movies and other information services to major hotel chains, from an investor group led by Acadia Partners LP in a $635-million deal.
Besides Spectradyne, he owns Denver-based Davis Oil Co., a large oil and gas concern, as well as a large commercial real estate firm and key resort properties such as ski facilities at Aspen, Snowmass and Buttermilk in Colorado and four golf courses in the Pebble Beach-Monterey area of California.
Northwest merged with Republic Airlines in January, 1986, to become the nation’s fifth largest airline. It is the largest carrier from Detroit, Minneapolis and Memphis and has more flights to the northern Pacific, which includes Japan, than any other U.S. airline.
Analysts said that many of the problems with lost baggage and late flights that occurred after the merger and earned the airline the nickname “Northworst” had been worked out. The airline is still negotiating with its pilots over delicate wage and seniority issues stemming from the merger.
Analysts said that Rothmeier, 42, a Vietnam veteran who runs that airline in military fashion, lined up Republic’s domestic routes with Northwest’s overseas routes to create an impressive route system, with the ability to compete with the industry giants, American Airlines and United Airlines.
But some analysts say that, for all that, Northwest’s earnings have not been as strong as they could be.
However, the airline reported record earnings for 1988 after two years of post-merger consolidation. The airline earned $135.1 million on revenue of $5.65 billion last year. And, after cutting back on its route systems for the last two years, it now is adding new overseas routes.