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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9/A
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
(Amendment No. 2)
COMAIR HOLDINGS, INC.
(Name of Subject Company)
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Comair Holdings, Inc.
(Name of Person Filing Statement)
Common Stock, no par value per share
(Title of Classes of Securities)
199789108
(CUSIP Number of Class of Securities)
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Randy D. Rademacher
Senior Vice President Finance and Chief Financial Officer
Comair Holdings, Inc.
P.O. Box 75021, Cincinnati, Ohio 45275
(606) 767-2550
(Name, Address and Telephone Number of Person authorized to
Receive Notices and Communications on Behalf of
the Person Filing Statement)
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With a copy to:
Peter D. Lyons, Esq. Richard D. Siegel, Esq.
Shearman & Sterling Keating, Muething & Klekamp P.L.L.
599 Lexington Avenue 1800 Provident Tower
New York, New York 10022 One East Fourth Street
(212) 848-4000 Cincinnati, Ohio 45202
(513) 579-6400
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This Amendment No. 2 amends and supplements the Solicitation/
Recommendation Statement on Schedule 14D-9 filed with the Securities and
Exchange Commission on October 22, 1999, as subsequently amended (the
"Schedule 14D-9"), by Comair Holdings, Inc., a Kentucky corporation ("Comair"),
relating to the offer by Delta Air Lines, Inc., a Delaware corporation, to
purchase through its indirect, wholly owned subsidiary Kentucky Sub, Inc., a
Kentucky corporation, all of the issued and outstanding shares of common stock
(the "Shares"), no par value, of Comair, at a price of $23.50 per Share, net to
the seller in cash, upon the terms and subject to the conditions set forth in
the Merger Agreement.
Capitalized terms used but not defined herein have the meaning ascribed
to them in the Schedule 14D-9.
Item 3. IDENTITY AND BACKGROUND
(b)(1) 4. Non-Employee Directors
The first two paragraphs of the section entitled "Non-Employee
Directors" are hereby amended and restated in their entirety as follows:
"Comair and each of Peter H. Forster, John A. Haas, Gerald L.
Wolken, Robert H. Castellini, Christopher J. Murphy, III and Raymond A.
Mueller (the "Non-Employee Directors") executed certain agreements
dated as of August 10, 1999, in connection with the additional services
and responsibilities required by any change in control situation. On
August 10, 1999, the Compensation Committee of the Comair Board
authorized the terms of these agreements, and such agreements were
confirmed at a meeting of the Comair Board on October 1, 1999. Upon a
"Change in Control" of Comair each Non-Employee Director is entitled to
receive a lump-sum payment equal to such director's earned but unpaid
director's fees for the period through and including the date of the
Change in Control and an amount equal to five times the annual
director's fees, including fees for meetings and as chairman of any
committees. The Non-Employee Directors' agreements also provide for
lifetime travel privileges for the Non-Employee Directors and their
immediate family members on all Comair flights. According to Comair's
proxy statement for the July 2, 1999 annual meeting of Comair's
shareholders, the basic annual director's fee paid to Non-Employee
Directors of Comair is $20,000. In addition, each Non-Employee Director
receives $1,500 per year for each committee of which he is a member.
Committee chairmen receive an additional $1,500 annually. The
acceptance of Shares for payment in the Offer will constitute a Change
in Control for purposes of these agreements.
The foregoing description of the Non-Employee Directors'
agreements does not purport to be complete and is qualified in its
entirety by reference to the Non-Employee Directors' agreements which
are filed as Exhibits (c)(8) through (c)(13), and are incorporated
herein by reference."
(b)(2) 1. Marketing and Code Sharing Arrangements Between Comair and
Delta
The last sentence of the first paragraph of the section entitled
"Marketing and Code Sharing Arrangements Between Comair and Delta", is hereby
amended by deleting such sentence and replacing it in its entirety as follows:
"Delta and Comair have agreed to extend the Delta Connection
Agreement on a month-to-month basis after its expiration."
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Item 4. THE SOLICITATION AND RECOMMENDATION
(b) Background of the Merger and the Offer; Reasons for the
Recommendations
2. Reasons for the Board's Recommendation
The section entitled "Reasons for the Board's Recommendation" is hereby
amended by deleting paragraph (v) and replacing it with the following paragraph:
"(v) That Morgan Stanley's analysis demonstrates that if the
Delta Connection Agreement was amended or altered as provided by the
Initial Delta Proposal or the Intermediate Proposal, the Shares might
be expected to trade in the range from $5.00 per Share to $10.00 per
Share and that the $23.50 per Share in cash to be paid in the Offer and
the Merger represented a premium of approximately 135% to the $10.00
trading value and a premium of approximately 370% to the $5.00 trading
value;"
The section entitled "Reasons for the Board's Recommendation" is hereby
amended and supplemented by inserting the following after paragraph number (xi):
"(xii) That the $23.50 per Share in cash to be paid
in the Offer and the Merger represented a premium of
approximately 31% to the closing price of the Shares on
October 15, 1999, the last full day of trading prior to the
announcement of the execution of the Merger Agreement.
While the Comair Board noted (i) that the Offer price of
$23.50 was less than the highest sales price per Share of $29.00 as
reported on the Nasdaq National Market System in the fifty-two weeks
prior to the announcement of the Offer and (ii) that the Offer price of
$23.50 was less than the highest price of $24.75 which Comair had paid
for Shares in the fifty-two weeks prior to the announcement of the
Offer, the Comair Board did not consider either of these to be material
factors given the Comair Board's expectation of the price at which the
Shares might be expected to trade following the renegotiation or
termination of the Delta Connection Agreement. The Comair Board is not
aware of any firm offers made by any person, other than Delta and its
affiliates, during the eighteen months preceding the announcement of
the Offer for a merger or consolidation involving Comair or the sale or
other transfer of all or any substantial part of the assets of Comair
or the securities of Comair which would enable the holder thereof to
exercise control of Comair."
4. Opinion of Morgan Stanley to the Board
The first paragraph of the section entitled "Comparable Public Company
Analysis" is hereby amended and restated in its entirety as follows:
"As part of its comparable public company analysis, Morgan
Stanley compared certain financial information of Comair with
corresponding publicly available information of a group of four
publicly-traded regional airline companies that Morgan Stanley
considered comparable in certain respects with Comair (the "Comparable
Public Companies"), which group included: Mesa Air Group, Inc.;
Atlantic Coast Airlines Holdings, Inc.; Sky West, Inc.; and Mesaba
Holdings, Inc. Morgan Stanley applied a range of multiples for the
Comparable Public Companies, based on certain market trading multiples,
to operating data for Comair under the Comair Proposal, the
Intermediate Proposal, the Initial Delta Proposal and the Alternative
Business Plan to evaluate at what price the Shares might be expected to
trade in the public markets in the future based on each of these
proposals."
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The section entitled "Comparable Public Company Analysis" is hereby
amended by adding the following sentence at the end thereof:
"Morgan Stanley noted that the price of $23.50 proposed to be
paid to the Comair shareholders in the Offer and the Merger was above
the range of the implied per share equity values of $18.57 to $4.96."
The first paragraph of the section entitled "Discounted Stock Price
Analysis" is hereby amended and restated in its entirety as follows:
"As part of its discounted stock price analysis, Morgan
Stanley applied the multiples of the Comparable Public Companies to the
future expected earnings of Comair under the Comair Proposal, the
Intermediate Proposal, the Initial Delta Proposal and the Alternative
Business Plan to evaluate at what price the Shares might be expected to
trade in the public markets in the future based on each of these
proposals. Morgan Stanley applied a range of earnings multiples based
on the comparable public company analysis to projected year 2003
earnings for each of the proposals, to imply a future stock price for
Comair. The implied future stock price from this analysis was then
discounted to its present value based on a range of discount rates
representing the estimated cost of equity for Comair. As set forth in
the chart below, such analysis, using a multiple range of 7x to 11x and
a discount rate of 13% to 15%, yielded (i) a per share equity value of
$11.45 to $18.96 for the Comair Proposal, (ii) a per share equity value
of $7.04 to $11.66 for the Intermediate Proposal, (iii) a per share
equity value of $4.99 to $8.26 for the Initial Delta Proposal, and (iv)
a per share equity value of $6.71 to $11.11 for the Alternative
Business Plan."
The section entitled "Discounted Stock Price Analysis" is hereby
amended by adding the following sentence at the end thereof:
"Morgan Stanley noted that the price of $23.50 proposed to be
paid to the Comair shareholders in the Offer and the Merger was above
the range of the implied per share equity values of $18.96 to $4.99."
The first paragraph of the section entitled "Precedent Transaction
Premiums Analysis" is hereby amended and restated in its entirety as follows:
"As part of its precedent transaction premiums analysis,
Morgan Stanley reviewed takeover premiums paid in precedent airline and
"going private" transactions. Morgan Stanley applied a range of
premiums based on such precedents to the potential trading values
arrived at in the comparable public company analysis to evaluate the
potential prices for the Shares under each of the proposals. Using
publicly available information, Morgan Stanley performed an analysis of
two precedent transactions (the "Precedent Airline Transactions") in
the regional air carrier business segments that Morgan Stanley deemed
comparable to the Offer and the Merger for purposes of an analysis of
premiums paid. The two transactions constituting the Precedent Airline
Transactions were (acquiror/acquiree): American Airlines, Inc./Reno
Air, Inc. and Mesa Air Group Inc./CCAir, Inc. Morgan Stanley calculated
that the premium to unaffected stock price in the American Airlines,
Inc./Reno Air, Inc. and Mesa Air Group Inc./CCAir, Inc. transactions
was 51.9% and 24.4%, respectively, with a mean of 38.2% and a median of
38.2%. After combining the results of the Precedent Airline
Transactions with data from Securities Data Corporation indicating that
the mean and medium premiums paid in 76 "going private" transactions
during the past five years was 37.4% and 31.8%, respectively, Morgan
Stanley calculated a range of implied share values based on a range of
premiums from 30% to 40% applied to the values derived from the
comparable public company analysis set forth above:"
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The section entitled "Precedent Transaction Premiums Analysis" is
hereby amended by adding the following sentence at the end thereof:
"Morgan Stanley noted that the price of $23.50 proposed to be
paid to the Comair shareholders in the Offer and the Merger was at the
high end of the range of the implied per share equity values of $25.99
to $6.45."
The first paragraph of the section entitled "Precedent Transaction
Multiples Analysis" is hereby amended and restated in its entirety as follows:
"As part of its precedent transaction multiples analysis and
using publicly available information, Morgan Stanley performed an
analysis of the acquisition of ASA Holdings, Inc. by Delta. Morgan
Stanley applied the multiples from the ASA transaction to the Comair
operating data to evaluate the potential prices for the Shares.
Applying the multiples of earnings paid in the ASA transaction to the
expected earnings in the Initial Delta Proposal, the Intermediate
Proposal and analysts' expected earnings for Comair as compiled by IBES
resulted in a range of values for Comair of $21.96 to $16.94."
The section entitled "Precedent Transaction Multiples Analysis" is
hereby amended by adding the following sentence at the end thereof:
"Morgan Stanley noted that the price of $23.50 proposed to be
paid to the Comair shareholders in the Offer and the Merger was above
the range of the implied per share equity values of $21.96 to $16.94."
The first paragraph of the section entitled "Discounted Cash Flow
Analysis" is hereby amended and restated in its entirety as follows:
"As part of its discounted cash flow analysis, Morgan Stanley
analyzed the future cash flows generated under the projections provided
by Comair management for each of the Comair Proposal, the Intermediate
Proposal, the Initial Delta Proposal and the Alternative Business Plan
and discounted those cash flows under each such proposal to the present
value in an attempt to quantify the present value of executing a
business plan under each of the proposals assuming all of the
projections were achieved. Morgan Stanley performed a discounted cash
flow analysis of Comair for the fiscal years ended 2000 through 2004
based on the each of the proposals. Unlevered free cash flows of Comair
were calculated as net income plus depreciation and amortization plus
deferred taxes plus other non-cash expenses plus after-tax net interest
expense less capital expenditures less investment in working capital.
Morgan Stanley calculated terminal values by applying a range of
multiples to operating income in fiscal 2004 from 6x to 8x,
representing estimated market trading multiples for regional airlines.
The unlevered cash flow streams and terminal values were then
discounted to the present using a range of discount rates from 11% to
13%, representing an estimated weighted average cost of capital range
for Comair. The discounted values representing the aggregate values
were then adjusted by adding cash and subtracting debt to arrive at
implied equity values. Based on this analysis, Morgan Stanley
calculated implied per share equity values for Comair of:"
The section entitled "Discounted Cash Flow Analysis" is hereby amended
by adding the following sentence immediately after the Discounted Cash Flow
Analysis chart:
"Morgan Stanley noted that the price of $23.50 proposed to be
paid to the Comair shareholders in the Offer and the Merger was at the
high end of the range of the implied per share equity values of $27.09
to $10.04."
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The last paragraph on page 17 of the Schedule 14D-9 is hereby amended
and restated in its entirety as follows:
"In performing its analyses, Morgan Stanley relied upon
numerous assumptions provided to it by the management of Comair with
respect to Comair's industry performance, general business and economic
conditions and other matters, including, but not limited to,
assumptions relating to Comair's deployment plan (including the number
of aircraft that would be under operation, the number and the timing of
the delivery of aircraft and available seat miles), cost constraints,
passenger demand and operating margins as related to the continuation
or the termination of the Delta Connection Agreement and the carrier
market generally. Such analyses were performed solely as part of Morgan
Stanley's analysis of whether the consideration to be received by the
holders of Shares pursuant to the Merger Agreement was fair from a
financial point of view to such holders (other than Delta and its
affiliates), and were conducted in connection with the delivery of the
Morgan Stanley Opinion to the Comair Board. The analyses performed by
Morgan Stanley are not necessarily indicative of actual value, which
may be significantly more or less favorable than suggested by such
analyses. The analyses do not purport to be appraisals or to reflect
the prices at which Comair might actually be sold."
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Annex I. Information Statement Pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 Thereunder
The first two paragraphs of the section entitled "Directors and
Executive Officers: Material Contracts and Agreements with Executive Officers:
Non-Employee Directors" are hereby amended and restated in their entirety as
follows:
"Comair and each of Peter H. Forster, John A. Haas, Gerald L.
Wolken, Robert H. Castellini, Christopher J. Murphy, III and Raymond A.
Mueller (the "Non-Employee Directors") executed certain agreements
dated as of August 10, 1999 in connection with the additional services
and responsibilities required by any change in control situation. On
August 10, 1999, the Compensation Committee of the Comair Board
authorized the terms of these agreements, and such agreements were
confirmed at a meeting of the Comair Board on October 1, 1999. Upon a
"Change in Control" of Comair each Non-Employee Director is entitled to
receive a lump-sum payment equal to such director's earned but unpaid
director's fees for the period through and including the date of the
Change in Control and an amount equal to five times the annual
director's fees, including fees for meetings and as chairman of any
committees. The Non-Employee Directors' agreements also provide for
lifetime travel privileges for the Non-Employee Directors and their
immediate family members on all Comair flights. According to Comair's
proxy statement for the July 2, 1999 annual meeting of Comair's
shareholders, the basic annual director's fee paid to Non-Employee
Directors of Comair is $20,000. In addition, each Non-Employee Director
receives $1,500 per year for each committee of which he is a member.
Committee chairmen receive an additional $1,500 annually. The
acceptance of Shares for payment in the Offer will constitute a Change
in Control for purposes of these agreements.
The foregoing description of the Non-Employee Directors'
agreements does not purport to be complete and is qualified in its
entirety by reference to the Non-Employee Directors' agreements."
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Comair Holdings, Inc.
By: /s/ Randy D. Rademacher
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Name: Randy D. Rademacher
Title: Senior Vice President Finance and
Chief Financial Officer
Dated: November 5, 1999
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