Northwest Airlines Adopts Shareholder Rights Plan : Transportation: Board seeks to thwart any take- over bid by KLM, which denies it has such plans.

Northwest Airlines Corp. said Thursday that its board adopted a shareholder rights plan to thwart a suspected hostile takeover attempt by its alliance partner, KLM Royal Dutch Airlines.

In a deepening feud between the companies, the anti-takeover defense was approved by a vote of 11 to 3, with the opposition coming from three directors designated by KLM.

Northwest said the plan protects it against coercive or unfair takeover tactics and should encourage anyone seeking to acquire the company to negotiate with the board first.

KLM President Pieter Bouw again denied charges that the Dutch carrier plans a hostile takeover bid and said the shareholder rights plan threatens KLM’s interests.

KLM, which first invested in Northwest in 1989, now owns 18.8% of the voting rights at the Minneapolis-based carrier and 25% of its common shares.

“With the adoption of a rights plan, Northwest’s management can focus its full attention on Northwest’s operations and not be diverted by creeping control threats,” the 11 board members who supported the takeover defense said in a letter to Northwest employees.

“Further, the conduct of KLM’s management board over the past two years presents strong evidence that KLM represents a creeping control threat to Northwest,” they wrote.

The board said KLM has been actively supporting a change in U.S. law that would permit non-U.S. citizens to own up to 49% of the voting stock of a U.S. airline and has asked Northwest to support that position.

“KLM has assembled a war chest of more than $3 billion in cash and available bank borrowings that vastly exceeds its needs for liquidity as an airline,” the board members said in the letter.

Under U.S. law, a foreign company cannot hold more than 25% of the voting rights of an airline. At the board meeting, a Northwest spokesman said, KLM sought permission to acquire up to 25% of the voting rights but was turned down.

“We understand the need for a standstill,” Bouw told reporters. “Our difference is with the 19% level. Our options rights are being negatively impacted by the 19% cap.”

Asked if KLM would sue, he said, “That’s something we would carefully consider, and we’d keep all options open.” Bouw said he is interested in expanding the operational aspects of the KLM-Northwest relationship.

Under the rights plan, Northwest will issue rights to purchase one-hundredth of a share of preferred stock at an exercise price of $150 for each common share held.

If any person acquires 19% or more of Northwest’s outstanding common stock, other shareholders will be entitled to receive, upon payment of the exercise price, that number of shares of common stock worth double the exercise price.

The distribution of the rights will be made Nov. 27 payable to stockholders of record at the close of business on that date.

Northwest shares jumped $2.875 to $46.25 on Nasdaq.