Davis Offers $90 a Share in Hostile NWA Takeover Bid
Los Angeles oilman and real estate investor Marvin Davis on Thursday launched a hostile $2.7-billion bid for NWA Inc., the parent of Northwest Airlines.
Davis’ offer, which comes to $90 a share, is significantly below the price of NWA’s stock, which closed Thursday on the New York Stock Exchange at $98.75, down 75 cents. NWA’s board previously rejected the offer as inadequate.
The offer was clearly a disappointment to the investment community, which had been expecting Davis to make a higher offer for the company. Investment analysts said Davis’ offer to the shareholders has little chance of success unless the price of NWA’s shares takes a substantial drop.
“Let’s face it, no one is going to sell their shares at $90 when it’s trading at $98,” said Samuel Buttrick, an airline industry analyst with the Morgan Keegan investment firm in Memphis.
An adviser to Davis said the Los Angeles billionaire sees no reason to raise his offer in the absence of another bid for the airline. “Why should he outbid himself?” said Joseph O. Low III, a senior vice president of Donaldson Lufkin & Jenrette, a New York investment firm that has been retained by Davis. “Our offer of $90 a share is the only one on the table.”
In a statement, Davis said he still desires a friendly takeover of the airline, which on Thursday reported its highest first-quarterly earnings in a decade. “We still hope to proceed on a negotiated basis in order to acquire the company,” Davis said.
The Davis tender offer was the most dramatic chapter so far in his quest for Northwest Airlines, the nation’s fifth-largest air carrier. Davis is waging his campaign to buy NWA on several fronts. He has undertaken a proxy fight to replace NWA’s directors with his own supporters, and is suing NWA in an effort to overturn its “poison pill” anti-takeover measure.
He has also tried to win the support of public officials in Minnesota, where NWA is based. A spokesman for Rep. James L. Oberstar (D-Minn.) said Davis has agreed to build a new airliner maintenance facility in the state if he acquires the airline. Oberstar “isn’t opposed” to Davis, the spokesman said.
NWA urged shareholders to “take no action” on Davis’ offer. The company said it will review the offer and make a recommendation to shareholders by April 30.
Investment analysts said they still expect another bidder to emerge for the airline, which operates more flights to Japan than any other U.S. carrier. “It’s unlikely that another bidder won’t surface,” said Kurt Rivard, an analyst with the Dain Bosworth investment firm in Minneapolis.
The company Thursday reported first-quarter earnings of $12.6 million compared to a loss of $43.5 million in the first three months of last year. Revenues for the period rose to $1.5 billion compared to $1.2 billion in the same quarter of 1988.
Frequently mentioned as a possible suitor for the airline is Los Angeles investor Alfred A. Checchi, a former associate of the wealthy Bass brothers of Ft. Worth, Tex., who leads a group that owns 4.9% of NWA’s shares. A spokesman for Northwest’s pilots union said a Checchi representative recently contacted them to discuss a takeover of the airline. Checchi has refused to comment on the reports.
Also rumored to be interested in the airline is Peter V. Ueberroth, the former baseball commissioner who was unsuccessful in his recent attempt to buy strikebound Eastern Airlines. Neither Ueberroth nor his partner in the Eastern bid, J. Thomas Talbot, could be reached for comment Thursday. However, a Ueberroth associate who participated in the Eastern deal said he is not involved in a bid for NWA.
The company has said it is exploring alternatives to a takeover, such as paying shareholders a special dividend or repurchasing stock. It said earlier this week that it would meet with Davis and turn over financial details to him, but only if he agreed to sign a confidentiality agreement.
In a letter to NWA’s board, Davis objected to the proposed agreement because it would have barred him from making a tender offer for all the company’s shares.
Davis said in the letter that his bid depends on the company’s board withdrawing its “poison pill” or on Davis winning his legal challenge to it in Delaware Chancery Court. A hearing on his suit is set for April 24. NWA is incorporated in Delaware.
In announcing his tender offer, Davis disclosed a new $3.3-billion financing package that involves issuing $1.25 billion in preferred stock. Earlier, he had planned to borrow virtually all of the money from a group of banks led by Citibank.
James Kneser, a senior vice president for the Davis Cos., the entrepreneur’s Los Angeles investment company, said in an interview that he does not expect to use the new financing package to pay the costs of a tender offer, indicating that he expects a negotiated deal with NWA.
“I can’t remember the last transaction that went a tender offer route,” he said. “Most head in the other direction. That’s what we anticipate.”
