Battle Over Davis’ Confidential Plans May Stall NWA Bid

A Minnesota state official Wednesday threatened to derail Marvin Davis’ $2.7-billion bid for NWA Inc., the parent of Northwest Airlines, unless Davis turns over what the billionaire called confidential information.

Commerce Commissioner Michael A. Hatch gave Davis until today to provide details on his plans for the airline. If Davis fails to comply, he will be barred from purchasing shares from Minnesota residents.

Davis’ attorneys continued to negotiate with state leaders late Wednesday.

“We are trying to determine if there is any information we can give (Hatch) that will satisfy his concerns, short of confidential projections,” said George A. Vandeman, a partner with Latham & Watkins in Los Angeles.

The threat by Minnesota’s commerce commissioner is the latest in a series of hometown actions directed at Davis’ hostile bid for the airline, which is based in Eagan, Minn., a Minneapolis suburb.

The state legislature is considering measures that would tax so-called golden parachutes, the large financial settlements commonly made to top executives who are fired after a hostile takeover.

At the same time, the legislature is considering “tin parachutes” for employees who are fired after a hostile takeover of a Minnesota company. The “tin parachutes” would require an employer to pay fired workers for a full year.

If wasn’t clear how Davis’ tender offer would be affected if he failed to comply with Hatch’s order. Vandeman said that relatively few shares were held by Minnesota residents, even though about one-third of total shareholders reside in the state.

However, Hatch said he believed that Davis’ bankers might be reluctant to finance a tender offer with so many potential legal difficulties.

The Minnesota law has already survived one legal challenge. Four years ago, a federal appeals court in St. Louis upheld the law, ruling against Cardiff Acquisitions Inc., a La Jolla firm that wanted to take over office furniture maker Conwed Corp., then based in Minnesota. Conwed eventually accepted a sweetened offer.

Davis, the Los Angeles oilman and real estate investor, has launched a hostile $90-a-share cash offer for NWA, and is fighting to replace NWA’s board with his own slate. On Wednesday, he mailed NWA shareholders proxy materials that urged a vote for his board nominees. In a letter to shareholders, Davis wrote: “The only way to keep the pressure on the NWA board to produce a sale of NWA is to elect our slate of director nominees who are committed . . . to a sale of NWA.”

Reviewing Options

NWA, which has rejected Davis’ offer, has said that it is reviewing its options, including a sale of the entire company, a special dividend to shareholders or a partial repurchase of its stock.

In a letter to NWA Chairman Steven G. Rothmeier, Davis reminded Rothmeier that the company’s board promised to favor an all-cash offer: “We do not expect to see the board favor over our bid either a third-party offer that forces NWA’s stockholders to accept securities, or a recapitalization that leaves stockholders with . . . diluted equity.”

The letter was disclosed Wednesday in a filing with the Securities and Exchange Commission. Also on Wednesday, Davis filed with the SEC documents that extend the date for a consent proxy solicitation until June 24. The consent solicitation gives Davis the right to try to unseat NWA’s board if he loses his proxy fight.

Officials in Minnesota have raised questions about whether Davis can actually expand Northwest Airlines, as he has promised, and finance the acquisition by taking on a huge $2.4-billion debt. Hatch, the commerce secretary, said that NWA’s cash flow, totaling $600 million last year, isn’t great enough to pay interest on NWA’s debt and buy new aircraft. “The figures don’t add up,” he said.

Vandeman, the attorney for Davis, said Hatch is wrong. He declined to provide details, however.

Rather than turn over confidential financial documents to Minnesota officials, Davis submitted on Tuesday sworn statements from four experts who reviewed Davis’ plans for Northwest, and found them sound. “We thought that would be persuasive,” said Vandeman.

Three of the four experts were Davis advisers. They are Josiah O. Low III, a senior vice president at Donaldson Lufkin & Jenrette Securities in New York; David Batchelder, a La Jolla financial adviser, and James Kneser, a senior vice president with Davis Cos. The fourth expert was an accountant with the firm Peat Marwick Main, which is not involved with Davis.