According to people familiar with the matter, the Wall Street Journal reported that home-furnishings retailer Linens 'n Things, acquired by Apollo Management in 2006 and caught by a shrinking housing market and increasing debt load, is expected to file for Chapter 11 bankruptcy-court protection by Tuesday.
The United Auto Workers union notified General Motors Corporation (NYSE: GM) of its deadline to strike three factories in Michigan if the two are unable to agree on local labor pacts, the Detroit News reported.
The Business Standard reported that Toyota Motor Corporation (NYSE: TM) is planning to invest Rs 1,400 crore in Toyota Kirloskar Motor, its India subsidiary to set up its second plant in the country.
Troubled savings and loan giant Washington Mutual Incorporated (NYSE: WM) will receive a $5B investment from private equity firm TPG and other investors, the Wall Street Journal reported. For now, this eliminates the possibility that it will be acquired by another financial institution such as J.P. Morgan Chase & Co (NYSE: JPM).
People close to the situation said that Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) have revived merger talks. It is speculated, the Financial Times reported, that weak demand and high fuel costs are urging the airliners back to the table to work out a merger arrangement.
OTHER PAPERS:
Evergreen Solar Inc (NASDAQ: ESLR) is expected to announce today that it will double the size of its manufacturing facility in Massachusetts and add about 350 new jobs as part of its ongoing expansion, according to the Boston Globe.
WEB SITES:
Bloomberg reported that The Goldman Sachs Group Inc (NYSE: GS) has been the only major investment bank that has refused to reduce its leverage. In fact, Goldman's adjusted leverage ratio of assets rose to 18.6 at the end of February, from 17.5 at the end of November.
Northwest (NYSE: NWA) does not care what the pilots' union thinks. It plans to go ahead with a merger with Delta (NYSE: DAL) despite resistance from the sky captains. Pilots have held up a deal while they negotiate seniority provisions for a combined company.
According to The Wall Street Journal (subscription required), "a jump-started deal wouldn't include terms of a combined pilot labor agreement and the salary enhancements previously foreseen."
Aside from regulatory approval, the deal has two real problems. The first and most obvious is that the pilots may strike the airlines if they feel they have been mistreated. A shutdown, especially if it is prolonged, could cost tens of million of dollars in lost passenger revenue.
In addition, it is not clear that merging airlines has a clear benefit. Fuel costs do not change. The number of employees may fall, but some of the unions involved may ask for higher compensation in exchange for supporting cuts. Customer service department mergers almost always cause problems because putting together incompatible reservations platforms can take several quarters. This can damage relationships with consumers and cause them to use other carriers.
Pushing the merger may be a bad idea, whether the pilots are on board or not.
Douglas A. McIntyre is an editor at 247wallst.com.
MOST NOTEWORTHY: The airline sector, Siemens and Internap were today's noteworthy downgrades:
Lehman downgraded the airline sector to Neutral from Positive, citing higher fuel costs and the weakening economy. AirTran (NYSE: AAI) and U.S. Airways (NYSE: LCC) were downgraded to Equal Weight from Overweight. UBS said it can no longer recommend airline stocks due to weakening economy, high fuel prices, and less likely industry consolidation. The firm downgraded Continental Airlines (NYSE: CAL), Delta Air Lines (NYSE: DAL), Northwest Airlines (NYSE: NWA) and U.S. Airways to Neutral from Buy.
Goldman removed shares of Siemens (NYSE: SI) from their Conviction Buy List as they believe the company may book additional charges of $1.2B this year.
Jefferies cut Internap (NASDAQ: INAP) to Underperform from Buy as they believe the 10-K filing delay and revenue quality questions reduce visibility into the health of the business.
OTHER DOWNGRADES:
Wachovia lowered Amgen (NASDAQ: AMGN) to Market Perform from Outperform.
SI International (NASDAQ: SINT) was downgraded to Neutral from Outperform at Cowen.
To help stabilize the housing market, the Wall Street Journal reported that the Bush Administration is planning to help create fresh funding for mortgages. The plan, which still requires final approval, is said to ease an excess-capital requirement for government sponsored organizations Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, and the Federal Housing Administration.
The Wall Street Journal also reported that a merger between Northwest Airlines Corporation (NYSE: NWA) and Delta Air Lines Inc (NYSE: DAL) may be derailed after Delta pilots notified executives they remain unable to reach an agreement with Northwest pilots on how to integrate pilot ranks should the two combine.
The Financial Times reported that BAE Systems Plc (OTC: BAESY) won a $715M order to supply nearly 1,500 mine-resistant vehicles from the U.S. government.
OTHER PAPERS:
The Chinese government has locked out Australian mining giants BHP Billiton Limited (NYSE: BHP) and Rio Tinto Plc (NYSE: RTP) from selling iron ore into its daily spot market, the Sydney Morning Herald reported. Mining sources said that the decision may have already cost Australia up to $300M in export profits.
A memo sent by Delta Air Lines Inc (NYSE: DAL) to the company's employees regarding Delta's merger talks with Northwest Airlines Corporation (NYSE: NWA) stated that that no "potential transaction meets all [of Delta's] principles." The memo, the Wall Street Journal reported, is seen as a sign that merger talks between Delta and Northwest have stalled.
A group of 14 hospitals and the Securities Industry and Financial Markets Association, a Wall Street trade group, asked the SEC to buy back the debt they had issued, the Wall Street Journal also reported.
German lender HSH Nordbank has filed a lawsuit against UBS AG (NYSE: UBS) for allegedly maneuvering to saddle the German bank with troubled securities. HSH Nordbank contends that UBS sold it $500M in complex investments, which a UBS hedge fund later used as a receptacle for troubled subprime-mortgage securities, according to the Wall Street Journal.
WEB SITES:
According to FAO Newsroom, world fertilizer production is expected to outstrip demand over the next five years and will support higher levels of food and biofuel production.
The conventional wisdom is that labor unions in the US are close to dead and no longer have much influence on the managements of big companies. Tell that story to the boards at Northwest (NYSE: NWA) and Delta (NYSE: DAL). Disagreement at the pilot's union may undermine a merger between the two airlines.
According to The Associated Press ,"the pilots unions have agreed on a comprehensive joint contract, but they are unable to agree to how seniority for the 12,000 pilots would work under a combined carrier."
The dubious theory behind airline mergers is that putting two carriers together saves money, but concessions to labor to get a deal done may undermine that. It is also not clear that a newly combined airline can avoid the customer service problems early in the process. These troubles often drive customers away.
While the industry looks at a number of business combinations, pilots and other unions are pushing their agendas. The message is simple. If you want a merger, it is going to cost you.
Douglas A. McIntyre is an editor at 247wallst.com.
As a possible merger between Delta Airlines (NYSE: DAL) and Northwest Airlines (NYSE: NWA) looms, one of the biggest obstacles to a potential union seems to have been overcome today. Union leaders from both airlines have apparently reached an integration deal should a merger go through.
Should the two airlines officially merge, the resulting airline would be the largest, with close to 79,000 employees worldwide, and combined will have roughly 11,000 pilots. Before any consolidation could take place, unions for both set of pilots had insisted on having some input, and had stated that they would not be rushed in doing so.
The main issue was how the melding of the two sets of pilots would impact each pilot's place on the new company's seniority list. This integration deal seems to have addressed those issues, and cleared one major hurdle the two airlines will be forced to deal with. While the unions have been able to reach a tentative deal on pilot integration, it should be noted that any merger announcement will still have to face approval by the two unions.
With the rumored Delta (NYSE: DAL) / Northwest (NYSE: NWA) merger hanging fire [subscription required], customers of both companies may well wonder what the impact will be on their hard-earned frequent flyer miles. The answer seems to be both good and bad.
The good side is that traditionally when airlines have merged, the frequent flier miles were carried over, allowing customers to select among an increased number of flights and destinations. There is no reason to believe this merger will be any different.
However, as travel guru Peter Greenberg cautions in his blog, airlines merge in part to take advantage of more efficient operations; i.e., fuller flights. Fuller flights mean a diminution of available seats for frequent flyers. He suggests, and I concur, that you not wait to redeem what you can.
I also suspect it's not a coincidence that United is going to start charging for a second checked bag, a trend I expect to quickly become the industry standard. Might airlines next allow customers to redeem frequent flyer miles to cover baggage costs in order to sop up frequent flyer miles at a bargain price??
In the airline industry, it seems that any deal will do. Northwest Airlines Corp. (NYSE: NWA) is already fairly far along in discussions about merging with Delta Air Lines Inc. (NYSE: DAL). Now UAL Corp.'s (NASDAQ: UAUA) United Airlines is talking with Continental Airlines Inc. (NYSE: CAL). But one set of negotiations in not enough for Continental. It is also talking to AMR Corp.'s (NYSE: AMR) American Airlines, according to The Wall Street Journal (subscription required). The paper reports "the talks were exploratory, and it isn't clear they will go further."
Airlines are seeking mergers under the premise that combining companies saves costs. While that is true to some extent, the marriages also hurt customer service -- badly. Putting together incompatible reservations and service operations can take years and be extremely complex, which can make it hell for consumers who just want to take an airplane ride from here to there. Bad customer service is a sure way to drive off fliers, and that is not good for revenue.
The savings in a merger also might not be as great as imagined. Fuel costs stay the same. The number of pilots and crews may drop some, but that can also cause labor disputes and strikes that interrupt service. The number of people needed to handle customer support and processing of reservations probably cannot be cut by much, especially if retaining revenue with unhappy fliers is important.
In an industry where mergers and Chapter 11 filings have been part of the landscape for decades, combining airlines may be no panacea. It is good to remember that the two most successful carriers in the United States, American and Southwest Airlines Corp. (NYSE: LUV) have never been much enamored of merging.
Douglas A. McIntyre is an editor at 247wallst.com.
As is true at many large companies, Delta (NYSE: DAL) gives pay-outs to senior management if there is a change of ownership and controlling interest in the corporation. Executives who might be pushed out in a merger or takeover are guaranteed a big pay day as they leave. Richard Anderson, the chief at Delta, has said he will waive his package.
According toThe Wall Street Journal, the decision "is seen as a good-faith gesture by Mr. Anderson, who took the Delta helm in September, that he intends to remain at the airline well beyond the completion of any deal." It is the kind of largess that is rarely seen in corporate America and it is refreshing.
Mr. Anderson may think there is a good chance of him staying in a merger with Northwest (NYSE: NWA), but that is clearly not guaranteed. One of the biggest problems in a merger would be a fight by labor unions to keep as many jobs as possible as a combined company cuts costs. The unions often point to out-sized management pay packages as a reason that they should retain jobs.
Mr. Anderson has taken that union argument off the table.
Douglas A. McIntyre is an editor at 247wallst.com.
The theory at places like Delta (NYSE: DAL) is that airline mergers build stronger companies more likely to weather economic downturns. That does not take into account that a combination with a company like Northwest (NYSE: NWA) may actually allow for few costs. Also, poor customer service, which is often part of mergers, could drive away customers.
According toThe New York Times, "Close scrutiny of the business rationale for airline mergers suggests that any improved profits from consolidation will likely be short-lived, at best."
Common sense would support that point of view. Putting together two airlines saves no money in the fuel department. The number of in-flight people is not likely to change much. Aircraft maintenance costs stay about the same. There may be some savings in ground personnel. The disruptions in customer service which usually come with an airline combination are likely to drive some people to competing carriers.
If a recession comes, an airline merger might save some money short-term, but it will not offset sharply high jet fuel prices and falling numbers of travelers.
Douglas A. McIntyre is an editor at 247wallst.com.
Delta (NYSE: DAL) is not wasting any time. It would like to have a merger deal in place before the end of the month. According toThe Wall Street Journal, the airline is already in talks with both United (NASDAQ: UAUA) and Northwest (NYSE: NWA).
What's the hurry? In an industry where losses are more common than profits and Chapter 11 is not an unusual state of operation, consolidations may be a way to stay in business. Both oil costs and a weak economy could undermine financial results at big carriers.
That leaves open the question of whether mergers really help airlines make money. There are savings in personnel but they often involve difficult negotiations with unions. A combined operation does not help bring down oil prices.
Perhaps most important, merged airlines often have problems combining reservation systems and customer service. That means quality of service drops and consumers sometimes take their business elsewhere.
The math is not all that compelling.
Douglas A. McIntyre is an editor at 247wallst.com.
After airline stocks took a nearly unprecedented beating during the last few weeks on concerns about higher fuel costs and a falling economy, they rallied this week. Some of it may be that the selling was a bit overdone. But the biggest cause was news that Delta (NYSE: DAL) is considering a merger with Northwest (NYSE: NWA) or United (NASDAQ: UAUA).
According toReuters, "most of the largest U.S. airlines are likely to post fourth-quarter losses, possibly signaling the end of an industry recovery that began in 2006 and further building a case for mergers."
Mergers in the airline industry are often used to keep one or the other carrier out of Chapter 11. The courts have been the refuge of the flying business for decades. If a carrier can't pay its bills, it goes into bankruptcy. When things get better, it comes out again. Creditors and unions usually get the short end.
The assumption that putting two big airlines together will save money is undoubtedly true. But compared to overall costs, those savings are probably very, very modest. Running Northwest costs about $12 billion a year. So much of that goes into fleet costs, fuel, and labor that there is not much to cut. Employees can be pushed out over time, but the unions are sensitive about it.
Here are some highlights from this past week's earnings coverage from BloggingStocks: .gif){kind=logo}
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The conventional wisdom is that labor unions in the US are close to dead and no longer have much influence on the managements of big companies. Tell that story to the boards at 
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