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Delta Air Lines, TPG Capital Eye AMR Takeover

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  • Delta Air Lines, TPG Capital Eye AMR Takeover

    Delta Air Lines and private-equity firm TPG Capital are both exploring separate bids to acquire bankrupt American Airlines parent AMR Corp., according to a new published report.

    The news, which was reported by The Wall Street Journal, offers new hope for American Airlines, which in November became the last of the major U.S. airlines to file for bankruptcy.

    TPG Capital, which is one of the world’s largest private-equity firms with about $48 billion of capital under management, is attempting to work with another airline on a potential bid, the paper reported.

    TPG has a history in the airline industry, helping to turn around Continental Airlines, which is now United Continental, in the 1990s and attempting to take over Australia’s Qantas Airways last decade.

    Delta, which thanks to its buyout of Northwest is already one of the world’s largest carriers, has conducted analysis that concludes an American Airlines acquisition could receive regulatory approval as long as certain concessions were met, the Journal reported. American Airlines is the third-largest U.S. airline.

    However, a number of horizontal integration deals have failed to reach regulatory muster in recent months, including AT&T’s failed $39 billion takeover of Deutsche Telekom’s T-Mobile USA. Similarly, European regulators have preliminarily blocked Deutsche Boerse’s acquisition of Big Board parent NYSE Euronext.


  • #2
    I can't imagine Delta's bid to receive regulatory approval. TPG has a lot of merit on the other hand, as it has proven experience in turning around a major airline and that gives investors (and the judge) confidence to put AA into its hands.

    It's also difficult to imagine oneworld to let go of AA (which would be the result of Delta's takeover) as it will literally collapse without AA. TPG can easily persuade other oneworld partners to put in money for AA. While some of them may not have a lot of cash to work with, CX and LAN are flooded with cash and BA (IAG) should have sufficient money to put something into TPG's pot. As long as their equity stake do not go past 25%, there won't be problems.
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    • #3
      The thought of Delta's bid just has too much red tape to it, from the shear size of the two companies, the large concessions that would obviously have to be made (ORD/DTW), obvious regulatory hurdles, Oneworld/Skyteam issues, and more.

      The bid by TPG seems reasonable as it would seem to keep AA and AMR intact, it'll probably lure other Oneworld alliance members to infuse cash into AA, and has a lot less red tape over it in terms of regulatory approval and such.

      Now the thought of US Airways's possible bid...how long has that thought of the two (US/AA) merging been going on. Now with the bankruptcy would seem a reasonable time but then again, I think AA will come out of this better and intact.
      what ever happens......happens

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      • #4
        The sharks have started to circle American Airlines, but don't expect anything to come of it -- at least in the near term. A tie up involving American with either Delta Air Lines or US Airways makes little strategic sense at this point and would end up creating major headaches for all the parties involved. Meanwhile, a cash infusion from either TPG or another private equity firm isn't needed for the airline to work its way through bankruptcy.

        http://finance.fortune.cnn.com/2012/...azines_fortune
        The article is a very interesting read, and it's quite sound logically. Perhaps Chapter 11 can be the best thing that happened to AA in the past decade. Biased though, I admit that I would like to see them emerge as a non-merged entity, and would hate to see them go to DL or UA...
        Whatever is necessary, is never unwise.

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        • #5
          now, i'll first declare that i know very little about this stuff, but TPG has 48 bil "under management." funny thing is, AA had 41 bil in cash in the bank when they filed for chapter 11.

          i for one don't think any of this will come to fruition. AA will emerge intact after screwing its creditors, shareholders, and employees.

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          • #6
            Originally posted by TeeVee View Post
            now, i'll first declare that i know very little about this stuff, but TPG has 48 bil "under management." funny thing is, AA had 41 bil in cash in the bank when they filed for chapter 11.
            AA has $4 billion cash going into bankruptcy, not $41 billion. And also, when PE firms like TPG buys things, they typically do that with leverage (i.e. borrowed money) and/or with other partners (in this case I think other oneworld airlines will be very interested and generous to open their wallet), so their size doesn't really matter, it's their experience and intention (e.g. to run it as a going-concern or to break it up and sell it as pieces) that would be the focus of the discussion.
            Originally posted by AA 1818 View Post
            The article is a very interesting read, and it's quite sound logically. Perhaps Chapter 11 can be the best thing that happened to AA in the past decade.
            Great article indeed. Very rational analysis and it is true that AMR is in no rush to be sold due to its cash position.
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            • #7
              It's meaningless to talk about Company A or Company B having x billions of cash on its balance sheet. First, a balance sheet is merely a snapshot on one particular day, and second, you have to take into account the whole balance sheet, including debts and liabilities.

              TPG is a serious and convincing possibility for American, and it has had great success in airline investments (not usually a successful proposition) over several decades.

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              • #8
                Originally posted by HalcyonDays View Post
                It's meaningless to talk about Company A or Company B having x billions of cash on its balance sheet. First, a balance sheet is merely a snapshot on one particular day, and second, you have to take into account the whole balance sheet, including debts and liabilities.
                Exactly, but too bad most articles out there focus on the cash positions and assets and forget the other side of the balance sheet, especially the nature and maturity of the liabilities. That said, the cash flow statement can provide some insight to the liquidity of the company. The company can run into challenges if its liquidity position is not good, even if its balance sheet is sound.

                In any case, AMR's core problem is its cost base compare to its competitors. Merger with a competitor without addressing this would not help.
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