RealTime IT News

Delta Gambles On Priceline

Atlanta-based Delta Air Lines Inc. is restructuring its investment in Priceline.com and making a bet that the struggling name-your-own-price service will see a recovery in the value of its stock.

The deal helps Norwalk, Conn.-based Priceline by paring its dividend expense, reducing its outstanding preferred stock by $280 million. Delta had previously held 6 million shares of convertible preferred stock of priceline.com with a total liquidation preference of $359.6 million and convertible into 6 million shares of priceline.com common stock.

Under today's agreement, Delta will exchange those shares for 80,000 shares of a new priceline.com preferred stock, with a total liquidation preference of $80 million, and also will receive warrants to purchase approximately 27 million shares of priceline.com common stock at the Feb. 6, 2001 closing market price of $2.97 per share.

Priceline closed yesterday at $2.68; at one time it was going for more than $100 a share. Clearly, Delta is banking on a successful turn-around.

"Priceline.com is a valuable distribution partner to us," said M. Michele Burns, Delta's executive vice president and chief financial officer. "We are very supportive of their business model and believe this transaction is in the best interest of both Delta and priceline.com."

Priceline CFO Robert Mylod said that "Delta has made a major commitment to the future of priceline.com by restructuring its equity."

Priceline's troubles began last fall when its advertising was called into question and it said earnings would be worse than analysts had feared. Last December the company cut its workforce and announced a back-to-basics strategy. Lately it has been refocusing on its core business.

The companies said the new series of preferred stock to be issued to Delta has an aggregate liquidation preference of $80 million and will pay dividends of 2.8 million shares of priceline.com common stock per year. The preferred stock is "mandatorily redeemable" on Feb. 6, 2007.

The preferred stock can be redeemed, at either priceline.com's or Delta's option, upon a change of control of priceline.com, the companies said. The warrants to purchase shares of priceline.com common stock to be issued to Delta are fully vested and can be exercised at Delta's election at any time prior to the redemption of the preferred stock. To pay the exercise price of the warrants, Delta will surrender shares of preferred stock valued at the liquidation preference per share.

Priceline was rising today on news of the deal and was up almost 19 cents to $2.87 in early trading.