BREAKFAST WITH THE FOOL
Monday, October 18, 1999
"You can observe a lot by just watching."
-- Yogi Berra
Delta Swooping In to Buy Comair
Richard McCaffery (TMF Gibson)
Passenger, freight, and mail air carrier Delta Air Lines (NYSE: DAL) is buying the remaining portion of regional passenger jet company Comair Holdings (Nasdaq: COMR) for about $1.8 billion, including $100 million in assumed debt, according to The Wall Street Journal.
At a price of $23.50 per share, the deal represents a 31% premium to Comair's closing price of $17 15/16 on Friday. Delta already owns a 22% stake in the Cincinnati-based carrier.
Founded in 1977, Comair's strategy was to serve cities that lacked regular flight service. Comair started out with three planes flying to Cincinnati, Cleveland, Detroit, Canton, and Akron, and now operates a fleet of more than 100 aircraft that fly to over 80 cities in three countries. The company is the country's number two regional jet airline behind AMR Corp.'s (NYSE: AMR) American Eagle.
Comair operates as a Delta Connection carrier under a 10-year agreement that expires this month. Under the Delta Connection program, Comair provides the short haul portion of longer multi-carrier flights, an agreement that gives Comair access to Delta's large customer base and provides Delta with access to regional jets in the fast-growing regional carrier business.
The two companies operate under a revenue sharing agreement that was being renegotiated. Terms of the new agreement were uncertain and led to the recent decline in Comair's stock price, the Journal reported.
Comair would be the second Delta Connection carrier Delta has bought this year. In February it purchased ASA Holdings, the parent company of Atlantic Southeast Airlines. Delta has revenue sharing agreements with a total of five regional jet air carriers.
Delta expects the agreement to be accretive to earnings this year, the Journal reported. And why not -- Comair makes a nice profit. Last year, the company reported net income of $132.9 million on revenue of $763.2 million, giving the carrier a net margin of 17%, compared to about 7% for Delta.
News to Go
Local telephone giant SBC Communications (NYSE: SBC) announced a plan to spend $6 billion over the next three years in an effort to become a major provider of high-speed Internet access services, Bloomberg and Reuters reported.
Automaker Ford Motor (NYSE: F) reported net income of $1.1 billion, or earnings of $0.90 per diluted share, up from $0.80 per share last year. It's Ford's 14th consecutive quarter of improved operating performance.
Food products marketer and distributor Sysco (NYSE: SYY) expects fiscal first quarter earnings of $0.32 per share (excluding a one-time accounting charge), about a penny above Wall Street estimates, as a result of strong sales and better gross margins.
Telephone and call center system provider Norstan (Nasdaq: NRRD) is exploring alternatives including possible mergers to improve shareholder value, Bloomberg reported.
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