NWA Stock Takes Big Leap as Davis Presses Takeover Bid
NWA’s shares soared Tuesday as Los Angeles billionaire Marvin Davis said he has lined up more than $3 billion to fund his takeover offer for the company, the embattled owner of Northwest Airlines.
Davis, whose $90-a-share offer has been rejected by NWA, also indicated that he would slow down the airline’s growth if he acquired it.
Airline industry analysts said Davis’ financing is more than he needs to cover his bid for the airline. Louis A. Marckesano, an analyst with Janney Montgomery Scott, a Philadelphia investment firm, said Davis now has enough money to pay up to $110 a share.
“He seems prepared to go higher,” Marckesano said. “The market seems to say either he or someone else will go higher.” NWA’s shares climbed $7.125 in trading Tuesday, closing at $97.375 on the New York Stock Exchange.
Officials of NWA, which is based in Eagan, Minn., made no comment on Davis’ financing plans. The company had previously rejected his $2.62-billion bid as inadequate.
Northwest Airlines, which has more flights to Japan and other countries in the North Pacific region than any other U.S. airline, had recently attracted another suitor, a shareholder group led by Los Angeles financier, Alfred Checchi. Reacting to the takeover bids, NWA’s board said Monday that it would consider all offers for the company, along with other alternatives designed to “enhance shareholder value,” such as buying back shares at a premium, or paying shareholders a special dividend.
Davis, who plans a proxy fight in an effort to unseat NWA’s board, has not yet met with NWA officials, his spokesman said.
Davis said he expects to borrow $2.4 billion from a consortium of banks led by Citibank and to raise another $600 million by selling high-yield “junk” bonds through Donaldson Lufkin & Jenrette Securities, a New York investment firm. Davis said he would also spend $300 million of his own money to help pay for the airline.
In addition, Davis said Citibank would provide a $250-million revolving credit line for working capital.
“We believe this is a very strong financing package,” Davis said in a statement. “With this financing package, no sales of any strategic assets will be required to meet the company’s financial obligations. In fact, we would expect--and could comfortably finance--the expansion of NWA’s passenger capacity by over 30% over the next six years.”
A spokesman for Davis said that it was possible that he would sell “non-strategic” assets, such as NWA’s Japanese real estate, which has been valued by analysts at $300 million, if he succeeds in buying the company.
Davis’ plan would more than triple NWA’s debt to about $3.6 billion, making it hard for the airline to navigate safely through an economic downturn, analysts said.
