USAir Group Inc. will buy Piedmont Airlines Inc. for $69 a share in cash, creating the nation's seventh-largest commercial carrier, the two airlines said yesterday.
Each airline's board of directors approved the $1.59 billion merger late Friday, but made no announcement of the agreement until yesterday, when USAir began a tender offer for all of Piedmont's outstanding shares.
The agreement ends a monthlong battle for Piedmont, a growing regional carrier whose headquarters are in Winston-Salem. In reaching the agreement, USAir may have made itself financially unattractive to Trans World Airlines, the carrier controlled by investor Carl C. Icahn that had proposed acquiring USAir for $52 a share in cash.
A federal judge in Pittsburgh issued a temporary restraining order yesterday forbidding TWA from acquiring any more of USAir's stock. It now owns about 15 percent.
In trading on the New York Stock Exchange, Piedmont closed at $67.63, down 63 cents. USAir closed at $47.63, down $3.50.
Analysts called the agreement a good deal for Piedmont's shareholders, although a little beneath the $70-$75 a share that they expected the airline to bring. They said that the combined carrier has the size to continue growing under increased competition from larger airlines, such as Delta Air Lines, American Airlines and Texas Air Corp.
In identical releases issued yesterday morning the two companies said, "We believe that the combination of these two carriers will create a strong airline which will be able to compete effectively against the industry giants."
The merger agreement differs from USAir's earlier bid for Piedmont, made in late February, in which it offered to buy the airline for a combination of stock and cash valued at about $72 a share.
William R. Howard, Piedmont's chairman, president and chief executive, said in a statement to Piedmont's employees that "this agreement between our two successful and profitable airlines enhances our opportunities for continued growth and lays the foundation for one of the most efficient and competitive major airlines in the nation."
Piedmont employees are concerned about whether the merger will mean job losses because of duplicate positions and facilities. Neither company would comment on what the merger portends for either Piedmont's 21,000 employees or USAir's 16,000 employees.
Piedmont employs about 8,800 people in North Carolina, 5,600 of them in the Winston-Salem/Greensboro area.
Airline mergers have often run into difficulties when combining work forces because of problems of combining two different wage rates and seniority lists. This is especially prevalent among pilots, mechanics and flight attendants, who are often represented by unions.
USAir's average annual wage costs are $48,000 per employee, compared with Piedmont's annual employee wage of $37,100.
USAir disclosed yesterday that it bought a 9.9 percent block of Piedmont's stock Friday from Norfolk Southern Corp. Approval from the U.S. Department of Transportation is required when an airline wants to buy more than 10 percent of another carrier.
Norfolk Southern has held 19.4 percent of Piedmont's stock. it had made its own bid for Piedmont, offering $65 in cash for each share, a position it never altered. When it sells its entire holdings in Piedmont, Norfolk Southern stands to gain $260 million, of which about $80 million are profits from the appreciation of Piedmont's stock this year.
In a filing with the SEC, USAir said that during the initial nine months it expects to gain "operating efficiencies through the rationalization of scheduling and the reassignment of aircraft from redundant routes to new markets and under-served destinations."
USAir also said that it would profit from the eventual combination of terminals, gates, maintenance facilities, and advertising and promotions.
USAir-Piedmont, with revenues well over $4.5 billion, would offer roughly 1,370 daily departures from more than 164 airports in the United States and Canada.
Piedmont's fate as an independent airline has been in question since the end of January, when an agreement expired between the airline and Norfolk Southern, allowing the railroad to own more than 20.5 percent of Piedmont's stock. During that five-year agreement, Norfolk Southern generally owned more than 16 percent of Piedmont, and its voting bloc acted as a strong hedge against unwanted acquisitions.
When that agreement ended, Norfolk Southern and USAir both submitted offers for Piedmont. Analysts suggested that Norfolk Southern might have been interested in owning Piedmont, but could have just as easily wanted to flush out other higher bids that would make its own position more valuable.