Business Context and Reporting Period
This Form 8-K, dated October 29, 2008, reports the completion of the merger between Delta Air Lines, Inc. ("Delta") and Northwest Airlines Corporation ("Northwest"). Effective October 29, 2008, Nautilus Merger Corporation, a wholly-owned subsidiary of Delta, merged with and into Northwest. Northwest and its subsidiary, Northwest Airlines, Inc., became wholly-owned subsidiaries of Delta. Northwest common stock ceased trading on the New York Stock Exchange and is being delisted.
Key Financial Metrics and Transaction Value
Transaction Consideration: Delta issued approximately 339 million shares of Delta common stock to former Northwest shareholders and for issuance pursuant to Northwest's Chapter 11 reorganization plan. Based on Delta's closing stock price of $7.99 per share on October 29, 2008, the aggregate value of the consideration was approximately $2.7 billion.
Financial Statements: The filing incorporates by reference Northwest's audited consolidated financial statements for the years ended December 31, 2007 and 2006, and unaudited condensed statements as of September 30, 2008. Specific revenue, profit, cash flow, or debt figures for the combined entity are not provided in this text; Delta intends to file pro forma financial information within 71 calendar days.
Material Changes and Corporate Governance
Board of Directors: The Delta board expanded from 11 to 13 members. Three directors resigned (Richard K. Goeltz, Victor L. Lund, Walter E. Massey), and five former Northwest directors were elected (Roy J. Bostock, John M. Engler, Mickey P. Foret, Rodney E. Slater, Douglas M. Steenland). Additionally, Kenneth C. Rogers, a Delta pilot, was designated by the Delta Master Executive Council.
Executive Appointments:
- Stephen E. Gorman: Elected Executive Vice President and Chief Operating Officer (Base salary: $450,000).
- Hank Halter: Elected Senior Vice President and Chief Financial Officer (Base salary: $360,000).
- Edward H. Bastian: Continues as President and becomes Chief Executive Officer of the Northwest subsidiary.
Outlook, Risks, and Unusual Items
Employee Equity Awards: Delta approved the issuance of equity to substantially all U.S.-based employees of the combined company, representing just under 10% of Delta's outstanding equity capitalization on a fully-diluted basis. International employees received cash awards. Approximately 600 to 700 leaders received restricted shares and/or stock options under the Merger Award Program (MAP), vesting over three years.
Future Filings: Pro forma financial information is expected to be filed under Form 8-K/A within 71 days. The filing notes that the description of the merger is qualified by reference to the Merger Agreement.
Investor Verification Checklist
- Verify the final pro forma financial statements to be filed within 71 days for combined revenue, debt, and liquidity metrics.
- Review the Merger Agreement (Exhibit 2.1) for complete terms and conditions of the transaction.
- Confirm the vesting schedules and forfeiture provisions of the Merger Award Program (MAP) for leadership employees.
- Monitor the integration progress of Northwest's operations into Delta's network.
- Check subsequent filings for the impact of the $2.7 billion equity issuance on Delta's capital structure.