"This Will Be All-Out War"

By John Greenwald

As Eastern Airlines prepared to embark on a new flight plan last week, another major carrier flew into the combat zone. In Minnesota directors of NWA, the parent company of Northwest Airlines, broke a week-long silence by rejecting a $2.6 billion takeover bid from a group headed by Los Angeles investor Marvin Davis. In spurning the $90-a-share offer, NWA Chairman Steven Rothmeier, 42, said his firm fully intends to remain independent. But Davis, whose group owns 3% of NWA's shares, vowed to press ahead with plans to acquire the company and its prize asset, Northwest, the fourth largest U.S. airline. The Californian's bid has raised the hackles of many Minnesotans, who are still smarting from last year's takeover of local giant Pillsbury by Britain's Grand Metropolitan.

NWA's rebuff last week was the latest in a series of dogfights between the company and its suitors. The maneuvering began on March 28, when NWA announced that another investment group had amassed a 4.9% stake in the company and might make a takeover bid. NWA promptly rejected the overture. While the unidentified group has not been heard from since, word of its interest apparently helped draw Davis into the contest. His bid pushed NWA's stock price from 68 1/4 in late March to 88 3/4 at the end of last week.

But the offer faces choppy weather. Davis, a billionaire oilman, acknowledges that the buyout hinges on whether he can raise enough cash. While he claims that he can, several of his highly publicized takeover attempts have fallen through. Among them: his $3.8 billion bid for CBS in 1986. Some airline-industry experts argue, moreover, that NWA is worth about $3 billion, or at least $100 per share. Analysts estimated that the company's Pacific routes and real estate holdings, including $500 million worth of property in Japan, have a value of $2 billion by themselves. Beyond that, Northwest owns more than 230 airliners and has a far-flung route system that extends from Shanghai to Stockholm.

To garner support, Davis pledged to keep NWA in Minnesota, where it has 15,000 employees, and to leave the airline intact. But that hardly reassured the company's workers, who fear that a takeover could bring belt tightening and layoffs. To protect their interests, labor unions at Northwest are opening talks with Davis and other prospective buyers.

NWA, however, has little interest in selling out. The company's arsenal includes a rare bipartisan alliance of Minnesota leaders, who last week declared their intent to send Davis packing. Said Governor Rudy Perpich: "This will be all-out war as far as the state of Minnesota is concerned." The politicians have already begun drafting measures that would include empowering state officials to veto hostile deals that would cause an adverse economic impact.

Yet even as NWA geared up for battle, the appearance of unity began to fade. Minnesota Democrat James Oberstar, chairman of the House aviation subcommittee, met with Davis last week and later said the billionaire's promise to build a major airline-repair center in Minnesota makes the bid "a very attractive offer." But Davis will need all his charm and cash to persuade the defiant Northwesterners.

With reporting by Marc Hequet/St. Paul