Group Agrees to Pay $4 Billion for Northwest

Times Staff Writer

A group led by Los Angeles investor Alfred Checchi agreed Monday to buy the owner of Northwest Airlines--the nation's fourth-largest air carrier--for $4.05 billion. If completed, the deal would be the largest takeover of a U.S. airline.

Checchi beat out rival suitors including oilman Marvin Davis, Pan American World Airways and the International Assn. of Machinists in a three-month corporate dogfight over St. Paul, Minn.-based NWA Inc. Pan Am and Davis indicated that they may not continue to pursue NWA unless Checchi's plan falls through.

Industry analysts said it would be difficult to top Checchi's $121-a-share offer without selling off major portions of Northwest, which flies 100,000 passengers daily and is the largest carrier on routes between the United States and Asia.

"You might be selling off some of the muscle to make the deal viable," said Louis A. Marckesano, an analyst with Janney Montgomery Scott, a Philadelphia brokerage house.

Northwest, which uses Los Angeles as the starting point for many of its flights to Tokyo and Osaka, Japan, is not likely to hike fares as a result of the takeover, analysts speculated.

"I think the passenger will not notice the difference," said Kurt Rivard, an analyst with Dain Bosworth, a Minneapolis brokerage firm, who said competition will force Northwest to hold prices in check. "It's a competitive world out there."

Checchi said his takeover of Northwest would not trigger any dramatic changes or the breakup of the airline, even though his offer includes adding $3.35 billion in debt. Checchi and his partners would put up the remaining $700 million required for the takeover. Analysts estimate that Northwest would have to pay $400 million a year in interest and principal to support the new debt.

Checchi, 41, is a former financial strategist for the billionaire Bass family of Ft. Worth, Tex., and operates a 1 1/2-year-old investment company in Century City. Before he worked for the Basses, Checchi was the treasurer for Marriott Corp., where he helped finance the construction of hotels.

Northwest officials said they have been assured that the new owners will not cut back on the carrier's ambitious plan to spend $8 billion on new aircraft over the next six years.

Federal transportation officials and airline union leaders have expressed concern about the effects that a large amount of new debt resulting from a takeover would have on the airline.

Warning From Skinner

Two weeks ago, Transportation Secretary Samuel K. Skinner warned Northwest that his department might launch a financial review of an acquisition. Officials have also been concerned about airlines such as Northwest selling off their valuable international routes to other carriers in order to reduce debt after a takeover.

A department spokesman said Monday that the agency had not yet reviewed the Checchi bid and would not comment.

Northwest's pilots, who have been working without a contract for two years, have expressed fear that the airline might sell off lucrative routes and lay off employees to pay off corporate debt taken on in a takeover.

Pete Quortrup, a Northwest pilot and a spokesman for the Air Line Pilots Assn., said the union was skeptical that the airline would remained unchanged by Checchi's takeover proposal. "I really want to see how Mr. Checchi plans to pull the rabbit out of the hat," he said.

Industry analysts said the debt could hurt Northwest financially if its business drops off or interest rates increase. But they said the Checchi proposal should not hinder the airline.

"You're looking at the ability to do the transaction and keep the company on a strong growth path," said Rivard. "It looks like a strong offer."

Northwest became a prime takeover target when its market value, as measured by its stock price, dropped well below the value of its assets. The airline boasts the lucrative Asian routes, a relatively low amount of debt and pricey Tokyo real estate worth about $400 million, analysts say.

Under Checchi's offer, stockholders would receive $121 in cash for each of their NWA shares. The offer is being made by Wings Holding Inc., a new entity formed by Checchi and his investment partners. The group includes KLM Royal Dutch Airlines; New York-based Bankers Trust Co.; Richard C. Blum & Associates, a San Francisco merchant banking and investment firm, and a subsidiary of Elders IXL, an Australian conglomerate.

If the group's offer falls through, Northwest said it has a "backup plan that includes the payment of $70 in cash for each Northwest share, a possible equity investment in Northwest by another group and the adoption of provisions aimed at "abusive takeover tactics."

Checchi said he plans to retain Northwest's current management, including Chairman Steven G. Rothmeier, and keep the airline's headquarters in St. Paul.

Northwest said Checchi's bid was the highest, had fewer conditions and "presented the greatest likelihood of consummation when compared to the other acquisition proposals received."

On the New York Stock Exchange, Northwest's shares rose $6.50 to close at $114.125. It was the third-most heavily traded issue on the exchange Monday.

Speculation about other possible takeovers in the airline industry pushed up the price of other airline stocks. UAL Corp., parent of United Airlines, rose $6.50 to $128.50; Delta Air Lines closed up $1.125 at $68.125, and USAir Group climbed $1 to end the day at $46.25.

4.9% of Stock Acquired

Checchi launched the first of several takeover efforts against Northwest when he announced in March that he had made an offer for the company and had acquired 4.9% of its common stock.

Shortly afterward, Davis plunged in with a $90-a-share offer and later launched a hostile bid after he was spurned by Northwest's board.

In May, struggling Pan Am entered the fray with its own bid, as did the airline machinists.

Davis, whose final offer for Northwest was valued at $115 a share in cash and securities, stands to make about $50 million by selling his shares to the Checchi group.

For Pan Am, the Checchi victory is a severe blow. Pan Am Chairman and Chief Executive Thomas G. Plaskett has said the money-losing New York airline needed to merge with another carrier or find a financial partner to survive.

Pan Am's overtures were greeted cooly by NWA, however. And last week, NWA's machinists said they opposed a merger with ailing Pan Am.

Staff writer Denise Gellene contributed to this story.

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