Davis’ $2.6-Billion Offer Lifts NWA Stock $16 a Share

The price of NWA Inc. shares shot up more than $16 Friday, one day after Los Angeles oilman Marvin Davis made a surprise $2.62-billion bid for the company, which owns Northwest Airlines.

NWA shares closed at $84.875 in frenzied trading on the New York Stock Exchange. The stock was the day’s second most active issue, with 2.6 million shares changing hands. The closing price fell short of Davis’ $90-a-share offer, however.

“I think investors wonder whether Davis can pull it off,” said Kurt A. Rivard, an airline industry analyst with the Dain Bosworth investment firm in Minneapolis.

Davis told Northwest’s board on Thursday that he was confident he could raise the money needed to buy the nation’s fifth-largest airline, but he offered no details. He was not available for comment on Friday.

Northwest, which earlier this week rejected an overture from an unidentified group of shareholders, has yet to respond to Davis, who has been looking for an airline to buy for two years. After being outbid by real estate tycoon Donald J. Trump for Eastern Airlines’ Northeast shuttle five months ago, Davis set his sights on Northwest, which owns valuable Tokyo real estate and key air routes in the burgeoning North Pacific market.

Davis, a billionaire with extensive California real estate holdings, would apparently have little trouble buying Northwest, according to analysts. Last fall, Forbes magazine put Davis’ wealth at $1.6 billion and estimated that he had accumulated around $1 billion in cash.

Airline industry analysts have said Davis could raise another $700 million or so by selling, and then leasing back, Northwest’s fleet. The airline owns about 260 of its 313 airliners and leases the rest. Davis could raise another $300 million or so, analysts said, by selling Northwest’s Japanese real estate.

But the analysts warned that any purchase agreement that requires Northwest to take on large amounts of debt would hurt the airline because it needs to buy new planes to modernize its fleet. The average age of its aircraft is more than 15 years, making it the oldest fleet in the industry, according to Avmark Inc., an aviation consulting firm in Arlington, Va.

“In my view they really need new planes to keep in a good competitive position,” said Robert Decker, an analyst with the Duff & Phelps brokerage in Chicago. “Any takeover-related debt will really detract from the value of the company.”

Davis is said to want Northwest because he believes that the airline industry, after years of consolidation and price wars, is poised for growth, especially in the Pacific. He reportedly wants to expand Northwest’s flights to Asia and also to Europe, where the company is not a major force.

Davis has apparently tried to enlist the support of Northwest’s unions. After presenting his offer to Northwest management, Davis asked to meet with the unions to discuss his proposal, one union leader said.

“I told him we are willing to sit down and discuss the situation,” said William Genoese, director of the Teamsters Union’s airline division. He said at least two other parties have expressed interest in buying Northwest, but he would not identify them.

Genoese, who represents 8,000 Northwest workers, said his union wants an employee stock ownership plan and a seat on the board. He said the unions approached Northwest several months ago about forming an employee stock plan but that the discussions were not fruitful.

Representatives of Northwest’s machinists could not be reached for comment on Davis’ bid, and the pilots issued a statement saying, “We are exploring all possible avenues of action and our team is in place.” A spokesman for the pilots would not elaborate.

Corporations often try to thwart unwanted takeover efforts by placing a large amount of shares in employee stock ownership plans. Recently, Polaroid used that tactic to ward off a proposed takeover by Shamrock Holdings, the investment vehicle of the Roy E. Disney family. NWA has about 1 million shares in its treasury that it could place in an ESOP, analyst Rivard said.