In November 2007, hedge fund Pardus Capital Management LP, holding 7 million Delta shares and 5.6 million UAL shares, sent a letter to Delta's management advocating a merger between Delta Air Lines and United Airlines. This was a follow-up to a September letter. Pardus, after consulting industry experts, including SH&E and former Continental Airlines CEO Gordon Bethune, concluded that a Delta-United combination was the most attractive and practical option, projecting $585 million in synergies and greater network breadth compared to combinations with Northwest Airlines or Continental. The fund estimated the combined company's stock would be valued at $53 per share by 2012, a 75% improvement from its current value.
The proposal suggested a stock-for-stock merger where Delta shares would be issued to UAL holders, with each UAL holder receiving 2.395 Delta common shares. Pardus also expressed support for Delta's management team to lead the combined entity, with UAL Chairman and CEO Glenn Tilton serving as non-executive chairman for one to two years. The letter was addressed to Delta's CEO Richard Anderson, President Edward Bastian, and Chairman Daniel Carp.
Delta's CEO Richard Anderson signaled that consolidation could benefit the airline, a sentiment echoed by other major carriers' executives, including UAL's Glenn Tilton, who had been advocating for industry consolidation for several years. Delta responded to Pardus's letter, stating that it believes the right consolidation transaction could generate significant value for shareholders and that it was evaluating strategic options, factoring in high oil prices exceeding $90 a barrel in its long-term planning. The company had already established a special committee, headed by Daniel Carp, to review strategic options.
Speculation of a Delta-United combination drove airline shares higher, with Delta's shares rising 3.6% to $19.42. Anonymous sources familiar with the discussions indicated that talks between UAL's United Airlines and Delta Air Lines had been ongoing for some time, including as recently as a week prior to the November 14th report. The urgency stemmed from a desire to complete a deal and start the federal regulatory approval process before a potential change in administration in 2009. The discussions reportedly involved keeping the United name, the corporate headquarters in Chicago, and Delta's Atlanta hub as an operational center, with Delta CEO Richard Anderson potentially leading the combined airline. Previously, in June 2006, UAL had explored merger possibilities with Delta and Continental, with industry sources noting Delta's Atlanta hub as an attractive option airliners.net.
