Davis Calls Time Out in Bid to Take Control of NWA
Wealthy Los Angeles oilman Marvin Davis, in an abrupt about-face, declared a truce Tuesday in his battle for control of NWA Inc., the parent of Northwest Airlines.
Davis agreed to drop his campaign to unseat NWA’s board with his own slate of directors and to postpone purchases of NWA stock under his outstanding $90-a-share tender offer. In return, NWA agreed to give Davis confidential information about the company’s financial condition to assist him in making a bid.
The cease-fire between Davis and NWA is a sharp turning point in Davis’ aggressive, monthlong pursuit of the airline company, which is based in Eagan, Minn. Until Tuesday, Davis had employed a wide range of tactics to gain control of NWA, which twice rejected his $2.7-billion cash offer.
Investment analysts speculated Tuesday that Davis sought the truce with NWA because he faced an uphill battle to replace the airline’s board. Also, with NWA’s shares trading at about $102 each, Davis’ tender offer stood little chance of success.
Davis was fighting “a losing battle,” said Daniel A. Hersh, an airline industry analyst with the Los Angeles investment firm of Bateman Eichler, Hill Richards Inc. “It’s clear that his bid would not be approved, and the proxy battle would not be won.”
But Davis’ attorney said both sides sought the agreement. “It’s fair to say that it was mutual,” said George A. Vandeman, a partner with Latham & Watkins in Los Angeles.
Davis, who owns 3% of NWA’s shares, had initially balked at signing a confidentiality agreement with NWA because he believed that the terms were too restrictive. In return for confidential information, NWA demanded that prospective bidders not make a hostile bid for the company or accumulate shares.
Tuesday’s agreement allows Davis to resume a hostile bid for the company after June 30, if NWA has not decided to sell the company by then. The agreement allows Davis to buy shares under his tender offer after June 30 and also allows him to launch a second effort to unseat NWA’s board after that date. For its part, NWA said it would give Davis 10 days’ notice if it plans to pursue “non-sale” alternatives.
“This agreement protects and preserves our rights to deal directly with our fellow NWA stockholders should we become convinced that the process is not moving in a direction which we believe truly serves stockholders’ interests,” Davis said in a statement.
Hersh, the Bateman Eichler analyst, speculated that NWA agreed to modify the terms of its confidentiality agreement to avoid a disruptive proxy battle. Davis and NWA also agreed not to proceed, at least temporarily, with lawsuits filed against each other in courts in Minnesota and in Delaware, where NWA is incorporated.
NWA’s board is exploring a number of options for the company, including a special dividend, a stock buyback or a sale of the airline. NWA Chairman and Chief Executive Steven G. Rothmeier has said he hopes to find an investor who is willing to act as a “white squire” by taking a large stake in the company.
Besides Davis, NWA has been approached by up to four other investors who are interested in a “friendly” takeover of the airline. They have been asked to sign confidentiality agreements that bar a hostile bid for the company.
One of the friendly investors is known to be Alfred A. Checchi, a Los Angeles investor who leads a group that owns 4.9% of NWA’s shares. Among the others are thought to be two New York investment firms that specialize in leveraged buyouts--Kohlberg Kravis Roberts & Co. and Forstmann, Little & Co. Also named as a possible NWA investor is Ronald O. Perelman, chairman of Revlon.
