Northwest, Continental reach tentative accord in antitrust case
Monday, November 6th 2000, 12:00 am
By: News On 6
DETROIT â€“ Continental Airlines and Northwest Airlines said Monday they have reached a tentative deal that would have Northwest sharply reduce its voting stake in Continental, hoping to settle a federal antitrust suit over the matter.
The two airlines plan to petition U.S. District Judge Denise Page Hood to delay court proceedings for a week to let the companies reach definitive agreements.
A final deal, which Northwest and Continental said will close about two months after the definitive accord is reached, must be approved by both airlines' boards, the Justice Department and certain third parties.
Under the proposed deal, Northwest will exchange its Class A Continental shares that carry 10 votes per share for $450 million in cash and a lesser number of Continental B shares that carry one vote per share.
In addition, Northwest would get preferred stock in Continental that would give it the right to veto a proposed combination between Continental and other carriers under some conditions.
The proposed transaction would depend on the withdrawal of the government's antitrust lawsuit against both companies over Northwest's 1998 purchase of a controlling stake in Houston-based Continental.
A. Douglas Melamed, the acting assistant U.S. attorney general heading the department's antitrust unit, said the government would join the airlines in asking Hood to defer the trial's resumption until Nov. 14.
Melamed in a statement called the agreement "a victory for consumers, who will benefit from lower fares and better airline service. This is the result we have sought all along. It will ensure that Northwest and Continental remain independent competitors."
The proposed deal also would extend until 2025 the carriers' domestic alliance, which both say helps them better compete with the nation's top three carriers â€“ United, American and Delta.
Northwest, based in Eagan, Minn., is the nation's fourth-largest carrier, Continental the fifth.
Last week as the trial got under way, both companies said negotiations on a settlement appeared grounded. Continental accused Northwest of bad-faith bargaining and "litigation posturing," while Northwest countered that it had bargained in good faith.
At trial, the Justice Department was pressing for Northwest to give up its 55 percent voting stake in Continental, arguing that Northwest's holding could squeeze consumers, worsen service and stifle competition. Its Class A shares represent only 14.8 percent of Continental's equity, however.
When Northwest bought the stock, it agreed to place the stock in voting trust for six years and comply with restrictions on its voting rights for another four years.
Continental defended the sale when the government filed suit in 1998 but has since sought to get the shares back, saying loopholes in the deal's final four years could leave the carrier vulnerable to a Northwest takeover.
Northwest and Continental run separately but have linked their route systems, share codes that let one carrier book seats on the other's flights, and have reciprocal frequent-flier programs.
The government has not tried to overturn the carriers' alliance.
Under the proposed deal, Melamed said, Northwest would divest all but 7 percent of its voting interest in Continental.
"Continental has always valued Northwest as a strong alliance partner," Gordon Bethune, Continental's chairman and chief executive, said in a statement Monday. "Putting this divisive issue behind us will allow both parties to focus their energies on an alliance that benefits consumers, shareholders and our employees for many years to come."
John Dasburg, Northwest's president and CEO, said his company's objectives have been to build a successful alliance with Continental and ensure the independence of that airline, with both missions accomplished by the tentative deal.
"The issues that bring Northwest and Continental together are far stronger and more compelling than those that divided us on this issue," Dasburg said.
The lawsuit has taken on additional importance since No. 1 United Airlines proposed a deal to acquire No. 6 US Airways earlier this year. That tentative agreement is subject to Justice Department approval.
Northwest spokesman Jon Austin declined to publicly discuss Monday's announcement beyond the companies' statement. Messages left for Continental were not immediately returned.
The trial was to resume Tuesday.