Mid November last year, Arizona based US Airways announced its offer to acquire Delta Airlines Inc. for a net worth of $8.6 billion which was promptly rejected by Delta. Last week, US Airways upped this bid to a net worth of $10.2 billion. While claiming that their earlier offer would have been just as lucrative to Delta, they stated that this increased offer would serve to establish their commitment to increasing the wealth of Delta's unsecured creditors, what with Chapter 11 filing in place. The new offer includes a $5 billion dollar cash payment and roughly 90 million shares (at their Jan 9th closing price, totals to around $5.2 billion). In preliminary talks, Delta has rejected the deal yet again, reassuring shareholders that they are confident of coming out of bankruptcy in 2007. Going further, they claim that their research on the US Airways offer has not taken into account the cost of negative synergies involved in such an acquisition and that a total debt burden of $23 billion would end up having to be shouldered.

All this seemed pretty reasonable to me, however there was one lingering doubt I needed clarified. What makes an acquisition deal like this different from a merger. Other than, of course, that in a merger there would be new shares, probably new names, trademarks and symbols. It would be easier to understand if say Mark Cuban were approached by Microsoft to acquire the Dallas Mavericks franchise, bceause that would result in a conglomerate with Cuban walking off with cash and/or Microsoft shares. In the Delta-US Air case however, it took sometime for me to figure out the picture, but I think after some web research on M&A definitions, I finally got it. If Delta accedes to the acquisition request, it will be because it sees profit to the shareholder in the long run and it sees profit to the creditors who must be putting a lot of pressure on the rest of the board to pick the route that gets back their investments. And the $10.2 billion that is promised will go into the individual hands of the people that have sunk in the money which imho should include the creditors as well as the shareholder. I know it does include the creditors, but I pretty much doubt any share will go the other way. Another thing that confuses me is whether the word creditors includes shareholders as well? Because, in an acquisition there will not be any shares of Delta left, either they will need to be bought up by force of law or converted at some rate to US-Airways shares. I hope the deals goes through, so I can understand further how things work.