Can the NW/TPG deal close in the current environment?

Old Jan 4, 08, 8:30 pm
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Can the NW/TPG deal close in the current environment?

This could get interesting. In case you haven't noticed, airline stock prices have almost halved since the TPG deal was announced (due to oil and economic worries). NW and TPG were already paying what looked like a huge premium. Now they would be several hundred million underwater if they close the deal. I wonder what the break-up fee is.

BTW, there's some precedent for airlines backing out of deals after the economics turned. UA essentially "gave up" on their bid for US a few years ago when it no longer looked like a smart deal.
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Old Jan 4, 08, 9:37 pm
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Originally Posted by iahphx View Post
This could get interesting. In case you haven't noticed, airline stock prices have almost halved since the TPG deal was announced (due to oil and economic worries). NW and TPG were already paying what looked like a huge premium. Now they would be several hundred million underwater if they close the deal. I wonder what the break-up fee is.

BTW, there's some precedent for airlines backing out of deals after the economics turned. UA essentially "gave up" on their bid for US a few years ago when it no longer looked like a smart deal.
I actually think AirTran if they won the bid for Midwest would be thinking about backing out right now too. Times are going to be tough for the airline industry. I bet the hedge funds that have a lot at stake in MEH stock are holding their breaths right now... LOL
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Old Jan 4, 08, 10:12 pm
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From the merger agreement at p. 9 of Exhibit A:

“Termination Fee” means $13,541,000.


http://www.sec.gov/Archives/edgar/da...0917/exh21.htm

I'm not sure that this is what is normally considered the "break-up fee", but my guess (w/o studying the contract) is that this is the price for walking away from the deal. If it is, that's pretty small compared to the $400m+ price of the deal. Perhaps the $14.22 share price (compared to $17 tender offer) is a reflection of both potential DOJ objections and the possibility the buyers might back out of the deal.
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Old Jan 5, 08, 9:14 am
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How much did NWA/TPG eventually pay for Midwest? Is it 16 or 17 dollars per share?
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Old Jan 5, 08, 9:45 am
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Originally Posted by Tim34 View Post
How much did NWA/TPG eventually pay for Midwest? Is it 16 or 17 dollars per share?
$17 per share.

The other thing to remember about the NWA/TPG deal is that neither party has to seek outside financing for the deal. AirTran, on the other hand, had provisions in their proposed buy-out agreement that allowed them to walk away from the deal if they were unable to secure financing at attractive terms.
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Old Jan 5, 08, 9:58 am
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Originally Posted by BlueHorseShoe2000 View Post
$17 per share.

The other thing to remember about the NWA/TPG deal is that neither party has to seek outside financing for the deal. AirTran, on the other hand, had provisions in their proposed buy-out agreement that allowed them to walk away from the deal if they were unable to secure financing at attractive terms.
Exactly why the AirTran deal would have ultimately failed if they won the bid for YX. Attractive financing terms have dried up in recent months.
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Old Jan 5, 08, 10:24 am
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Originally Posted by BlueHorseShoe2000 View Post
$17 per share.

The other thing to remember about the NWA/TPG deal is that neither party has to seek outside financing for the deal. AirTran, on the other hand, had provisions in their proposed buy-out agreement that allowed them to walk away from the deal if they were unable to secure financing at attractive terms.
Ouch, TPG and NWA really overpaid.
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Old Jan 5, 08, 10:49 am
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Originally Posted by Tim34 View Post
Ouch, TPG and NWA really overpaid.
My understanding is that TPG is paying the "fair value" for Midwest, and NW is paying the premium. For NW, this is a great deal because 1) they are keeping Airtran out of MKE (for now) and 2) The codeshare agreement will bring more passengers their way.
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Old Jan 5, 08, 12:01 pm
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Wow, it if was really possible for TPG/NW to walk for $13 million, I'd bet they would. From an investment perspective, if we could confirm that, it might make for a good short on MEH stock. I'd figure they're otherwise $200 million in the hole on this deal right now (conservatively).

It's interesting that AAI stock has completely collapsed here (I used to be an AAI shareholder, but I sold almost all my shares before the complete collapse. But don't think I'm so brilliant -- I'm losing plenty of money on my LCC shares bought in the mid-teens!). AAI seems to be doing the best of any of the US carriers right now -- their load factors and yields are terrific. They might still want MEH -- but I'm certain they wouldn't be willing to pay $17/share in the current environment.

As I said, this will be very interesting. And if TPG abandons MEH, could they even survive? They seem to have made a mess of their business trying to avoid AAI, and the fuel costs have to be really hurting them.
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Old Jan 5, 08, 11:35 pm
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In the days after the merger agreement was announced, it was reported that if Midwest walked away it would cost them $13 million. No word on what it would cost TPG/NWA to walk away.
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Old Jan 6, 08, 10:34 am
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Originally Posted by YX802 View Post
In the days after the merger agreement was announced, it was reported that if Midwest walked away it would cost them $13 million. No word on what it would cost TPG/NWA to walk away.
I took a closer look at the agreement (link above) and your understanding appears to be correct. The termination fee is what the company would pay the purchasers. It's not clear to me that TPG/NWA has any right to walk away, for any price.
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Old Jan 6, 08, 1:45 pm
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Originally Posted by iahphx View Post
This could get interesting. In case you haven't noticed, airline stock prices have almost halved since the TPG deal was announced (due to oil and economic worries). NW and TPG were already paying what looked like a huge premium. Now they would be several hundred million underwater if they close the deal. I wonder what the break-up fee is.

BTW, there's some precedent for airlines backing out of deals after the economics turned. UA essentially "gave up" on their bid for US a few years ago when it no longer looked like a smart deal.
Is their any evidence to suggest that either TPG or NWA is having any second thoughts?
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Old Jan 6, 08, 1:46 pm
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Originally Posted by dhuey View Post
I took a closer look at the agreement (link above) and your understanding appears to be correct. The termination fee is what the company would pay the purchasers. It's not clear to me that TPG/NWA has any right to walk away, for any price.
On August 16, 2007, a "definitive merger agreement" was signed by the three parties involved. Consequently, I don't think anyone is going to be walking away from anything.
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Old Jan 6, 08, 2:04 pm
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Still you got an airline which is not making a lot of money (midwest; although they are not doing that bad) and a deal where you are already in the hole. This could get interesting
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Old Jan 6, 08, 2:34 pm
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Originally Posted by YX802 View Post
On August 16, 2007, a "definitive merger agreement" was signed by the three parties involved. Consequently, I don't think anyone is going to be walking away from anything.
You're probably right in your conclusion, but signing a such an agreement is no assurance at all that it will close. It appears that there is no break-up fee or damages cap protecting TPG/NWA. If that's true (and I'm not sure about that), then the lack of such provision is why I'd agree with your conclusion, not merely the fact that they signed a "definitive merger agreement". Such agreements are coming unglued left and right these days.
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