Delta stock pulls back after US Airways bid; equity value seen only in warrants, rights offering scenario

By Ronda Fears

Memphis, Nov. 16 - Delta Air Lines Inc. stock retreated sharply Thursday as players mulled the unsolicited $8 billion bid for the bankrupt Atlanta-based airline from US Airways Group, Inc., which is proposed at $4 billion in cash and $4 billion in US Airways stock.

The news Wednesday sparked a flood of short covering in Delta shares, which in turn sparked buy-ins, traders said, but on Thursday everyone was rethinking the initial reaction.

Delta shares (Pink Sheets: DALRQ) opened at $1.54 and didn't trade much higher - $1.60 - and at the close had given back 21 cents, or 13.82%, to close at $1.31, still amid heavy volume of 21.3 million shares versus the norm of 3.7 million shares. The retreat had begun in the final minutes of trade Wednesday, when the stock pulled back from a high on Wednesday of $1.75 to settle at $1.52.

"There was a lot of shorts, buy-in, a short squeeze," said one equity trader. "Probably it was too much."

Delta stock value tenuous

Aside from there being lots of variables about whether the US Airways bid will be successful, given Delta is in bankruptcy and antitrust restrictions, the lack of details of the equity portion of the offer make it difficult to assess value to the Delta shares, sources said.

While a convertible trader suggested the Delta convertibles could be worth somewhere in the upper 70s if the US Airways merger went through, which pushed those issues into the upper 60s on Thursday from the upper 30s on Tuesday, a grasp on the value of the stock was less visible.

"The only way the [Delta] shares are worth anything as I see it is if there are warrants distributed or a rights offering," the equity trader continued.

No details along those lines have been released as part of the US Airways offer.

On the antitrust angle, US Airways hinted at an acknowledgement of having to dispose of some assets by saying it would aim to trim capacity of the combined carrier by 10%.

"Even with a 10% reduction in capacity, all existing U.S. destinations served today by US Airways and Delta will remain part of the new, improved network," said US Airways chief executive Doug Parker in a news release.

Meanwhile, traders said there would be a lot of money made, and lost, in the Delta stock as well as other bankrupt airlines.

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