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Daily Glean: A merger of unequals

By David Brauer | Tuesday, April 15, 2008
In Tuesday’s local news roundup, we straddle the nation to bring you Delta-Northwest: Glean Edition. Also, just in time for Tax Day: how much slumping home values slam local tax bases.

Saaaay, anything happen last night? How ’bout Brian Rolston’s nice rinkwide skate setting up Pierre-Marc Bouchard’s OT goal giving the Wild a 2-1 series lead over the Avalanche? No?

Oh yeah; Minnesota lost one of its 20 Fortune 500 companies — pending Bush administration approval. (Northwest’s revenues placed it ninth on Fortune’s 2007 Minnesota list and probably sinking.)

They call it a merger; but it’s basically an acquisition
, the PiPress nicely notes. Delta’s chairman, president and CEO all keep their jobs, according to the Atlanta Journal-Constitution. NWA does get five of 13 Delta board seats. Some management will be here, but duties are unspecified. NWA shareholders get a relatively slim 17 percent merger premium over their sinking shares, according to the PiPress.

One sign fares will rise: According to the PiPress, Delta foresees overhead shrinking $1 billion; current combined revenues are $35 billion. That relatively small percentage gain makes you think they’ll make their money in higher fares. Deal opponent Rep. Jim Oberstar tells the Strib it’s likely. But your frequent flier miles will count!

Promises, promises: Everyone repeats the airlines’ claim that no hubs will be closed (at least until after the antitrust review, no?). For us skeptics, MPR’s Bob Collins writes that Detroit, Cincinnati and Memphis have more to fear, “according to Pardus Capital, a hedge fund that owns about seven million Delta shares and was the driving force behind … a merger.” Detroit/Cincy would comprise one hub, with Memphis absorbed into Atlanta.

What about labor? The Atlanta paper says pilots — Delta’s only unionized workers — get 3.5 percent of the new megacarrier, a board seat and a labor deal though 2012. The PiPress says Delta pilots will arbitrate seniority lists, an NWA pilot demand, but local fliers get no more. The Atlanta paper says both companies’ surviving domestic nonpilot workers will get 4 percent equity. Somewhat vaguely, MPR foresees “no job cuts for most employees.”

The real Bush countdown clock: The deal should close in December, Delta CEO Richard Anderson tells the Atlanta paper. George Bush leaves office a month later. (Oberstar will be around and trying to gum up the works.) Experts tell the Strib’s Liz Fedor that the airlines would operate separately for a year after that.

More Justice: The New York Times notes that “previous combinations — notably United and US Airways in 2000 — were abandoned in the face of antitrust scrutiny and opposition from unions.” Of course, Dems controlled the White House then, and oil was cheap. Fedor’s experts say the deal will sail through because most routes don’t overlap. The Justice Department could require gate divestiture. Does that typically happen in hubs or elsewhere?

A silver lining? An MIT research analyst, an airline consultant, tells MPR that MSP will get more international flights, and a $100 million to $250 million local economic boost. Money quote: “The economic impact it will have on the state will far outweigh the loss of headquarters staff that may exit Eagan.” Local, local, local thought: airport noise impacts? Not in the coverage.

What the winning pols are saying.
The Atlanta paper has an interesting interview with Georgia Sen. Johnny Isakson, who brags about shooting down US Airways’ recent attempted takeover of Delta but — surprise! — fully supports Delta’s takeover of NWA. Would that our electeds were so effective and protective. Isakson gets to say, “Atlanta will become the gateway to the world.”

Meanwhile, in loser land … Anderson says Delta will “fulfill the spirit” of state hub/headquarters promises within 18 months. He’d better, or pony up $245 million — if Gov. Tim Pawlenty’s airports commission insists. Get-Tough Tim tells the Strib, “They either are going to owe us a substantial amount of money, or … renegotiate those commitments in a way that’s favorable to Minnesota for jobs, for flight operations and for hub status.” WCCO posts Pawlenty’s press conference here.

How big?
Good chart on the new mega-airline’s size advantages here. The New York Times says United and Continental will try to wrap a merger within 30 days, which would make them the biggest, domestically.

Duck skeleton:
Strib biz columnist Neal St. Anthony confesses his sordid past as a “short time” Republic PR guy and crafts a pithy local airline history.

In other news …
The Strib’s Steve Brandt and Anthony Lonetree detail falling tax bases in Minneapolis and St. Paul. From early 2007 to 2008, the bases are down 2.7 percent and 3.6 percent, respectively. Some hoped rising commercial values could lift sliding home values, but the residential drop was too great: down 6 percent-plus in both places. In Minneapolis, it wasn’t just a North Side thing; only downtown gained. There will be added pressure to keep tax hikes down.

Even commercial isn’t looking great in St. Paul: Developer Opus terminates a $10 million contract to purchase property on the riverfront Ramsey County Jail/West Publishing site, avoiding a $1 million payment. The PiPress says the developer is still interested, but wants more time to find an anchor tenant. County officials seem amenable. The Business Journal notes that only last fall the developer sweetened its offer. St. Paul’s office vacancy rate is a hefty 26.3 percent, the Strib observes.

Sign of the times: the Dayton’s Bluff Trolley Tour of Vacant Homes is like a Parade of Homes for the foreclosure era, the PiPress reports.

Strib talker: how local gas stations with convenience stores make money. Hint: It isn’t on the gas. Margins tell the tale: On $3.23 worth of gas, stations get 14 cents, and margins are falling when you factor in higher credit card fees; on a $3 sandwich, stations earn 90 cents, and more people pay cash. In the local economy, Big Oil doesn’t stand a chance against Super Mom.

A PiPress editorial says Gov. Pawlenty’s foreclosure focus on mediation and counseling isn’t enough, and likes DFL Rep. Jim Davnie’s conditional one-year mortgage deferment — which, the paper notes, isn’t a moratorium.

The FBI will talk to the Inver Grove Heights Arabic charter school about hate messages received regarding possible Muslim religious practices at the public school. The Strib mentions its stories got the alleged haters going.

Can we do curbside? A local waste hauler reports 42,000 motorists dropped off 4 million pounds of electronics over the weekend, the biggest recycling event in state history. At the Fairgrounds, 10,000 cars came through, the PiPress says.

The Glean’s Nort Spews bureau announces a new value-added feature: Sore Loser. After each home-team win, we’ll link to the losing city’s newspaper story and the satisfying lamentations. The Twins didn’t cooperate, but here’s Denver’s best teeth-gnashing: Denver Post and Rocky Mountain News. (But best of all: this, as pointed out by the invaluable MNspeak.)