The Associated Press reports that UAL Corporation (NYSE: UAUA)'s United Airlines and Delta Air Lines (NYSE: DAL) are in discussions about a merger. The firms would take United's Chicago headquarters and its name. One possible scenario involves Delta CEO Richard Anderson being the chief of the combined airline.
Why merge? Pardus Capital Management LP, a hedge fund, owns 7 million Delta shares and 5.6 million shares of United. Pardus pushed Delta to merge with UAL. It argued that it was "imperative" that the company merge with another airline in view of soaring fuel prices and what it described as the increased risks of going it alone. Pardus believes that "consolidation is needed to de-risk the industry, and time is of the essence as now is the right regulatory environment."
If Pardus is right, it seems to me that it must be forecasting that Hillary Clinton will be the next president. That's because Pardus believes that the regulatory environment for airline consolidation will deteriorate under the next president -- and I wouldn't be surprised if it thought mergers would be viewed more favorably under a Republican than a Democrat.
While it would be a mistake to generalize based just on party affiliations, the Democratic party is philosophically inclined to protect the interests of consumers, while the Republican party tends to back big business and Wall Street.
These differing values find their way into policy toward mergers -- with Democrats more likely to take a harder look at whether mergers will lessen competition and thereby raise prices to consumers. I discussed this danger on CNBC last December. Republicans, on the other hand, are more inclined to favor mergers -- particularly ones that enrich its big business donors.
Pardus's supposition of a Democrat in the White House -- most likely Hillary Clinton -- adds a sense of urgency about completing the merger soon.
On Wednesday, the stock prices of both companies were up, 7% for UAL and 8.5% for Delta, on the news.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
11-15-2007 @ 2:27AM
G. Arnold Williams said...
The issue is not a Clinton presidency. While that is a likely scenario, the motivation is a stronger Democratic majority in Congress, independent of whomever is in the white house. The disasterous Republican administration the last 7 years indicates it is likely to be both a Democratic Adminstration and a Democratic Congeress beginning in 2009, whomever the president elect is. That scenario is what is triggering the merger mania in airlines , not Hillary per se. An Obama or Edwards presidency would be even more likely to trigger the mergers in advance of 2009.
11-15-2007 @ 6:23AM
Ray said...
Under a Clinton II presidency, I would expect mergers to become more expensive and regulations to increase. However there is a bright side to this. The scandals of Worldcom, Enron, Tyco, Arthur Anderson, and Global Crossings may have hit the newspaper in 2001-2002 (under the Bush administration), but the actual crimes and irregularities were committed during the 1990's during the Clinton I administration.
Either the Clinton I administration fell asleep trying to administer all of the federal regulations, or the Clinton I administration was too distracted by Whitewater, futures trading, Lincoln bedroom rentals, and the Paul Jones sexual harassment lawsuit to pay attention to enforcing regulations. Either way, with a Clinton II administration I believe it will be Happy Times again!!
11-15-2007 @ 10:00AM
Jeff said...
Happy times, just like Bush II administration!Nothing like a trillion dollar war with the death of tens of thousands that ultimately fails to serve it's purpose, instead training the next generation of terrorism. Nothing like increasing the national deficit near 50% in two terms, colluding with business to usurp constitutional rights, negating the environment as a non-issue, preventing funding to potentially life saving stem-cell research on stem-cells that will be destroyed, strengthening the financials of the rich while blocking things like children's health care, and being at the helm of the demise of the dollar and the lost significance of the United States in the world.
Nothing like that to make the Clinton II presidency happy times again! Bring on the Lincoln bedroom!