Originally Posted by
thezipper
Under the terms of the proposed deal, which would create the world's largest airline, Delta will acquire Northwest in an all-stock swap in which Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own.
That was all good up until today ... Delta closed at $5.84 per share x 1.25 = $7.30 break point. NWA closed today at $7.47.
I've been following the stock price for each company and know there is a long time before the merger is expected to close, but what will happen if the delta (price difference) between the shares stays high, will Delta have to pay more? What type of ROI will the Northwest controlled hedge funds be expecting from the merger? I know they won't take a loss. Can Delta get additional financing if they would have to pay more.... curious.
I haven't read the entire agreement, but based upon what you quoted, I would say no, DAL would not have to pay more. It looks like the ratio was set per the agreement and there does not appear to be a calculation that would require more or less to be paid based upon the actual ratio of NW to DL stock prices. One would expect the price of the NW stock to come to 1.25 the price of the DL stock at the date the stock is swaped anyway. Perhaps if there is a collar on this agreement that you didn't include in the original quote the number of shares (or ratio) could change. For example the agreement could state that if the price of DL stock fell below $5/share the ratio would increase to 1.5 DL shares per NW share.