Delta Air, Northwest to merge; more deals ahead

By Charley Blaine and Elizabeth Strott

Late today, Delta Air Lines (DAL, news, msgs) and Northwest Airlines (NWA, news, msgs) finally agreed to merge in a deal that would create the world's largest airline.

The deal will mean less airline competition in the United States and will almost certainly spawn more domestic airline mergers.

The deal, worth about $3.1 billion, was announced late Monday and came after stocks had ended slightly lower for the day. The Dow Jones industrials were down 23 points, or 0.2%, to 12,302. The Standard & Poor's 500 Index was off nearly 5 points, or 0.3%, to 1,328, and the Nasdaq Composite Index was off 14 points, or 0.6%, to 2,276.

The impetus to combine comes from the soaring price of jet fuel, an airline's biggest cost after personnel. Crude oil closed at a new high of $111.76 a barrel today, up 1.5% from Friday. Crude is up 157% since the end of 2004 -- and 929% since hitting $10.86 a barrel at the end of 1998.

The Amex Airline Index ($XAL.X) has fallen 88% in the same time period. Both companies were forced to seek Chapter 11 bankruptcy protection in recent years to cope with higher fuel costs and a tough economy after the Sept. 11, 2001, terror attacks. Both emerged from Chapter 11 a year ago.

Under the terms of the deal, Delta would be the surviving company, which would be headquartered in Atlanta, and the company would be continue to be known as Delta.

Shareholders of Northwest would receive 1.25 shares of Delta for each Northwest share, The New York Times reported. While that formula gives the deal a value of about $3.1 billion, Delta said the combined companies would have an enterprise value of $17.5 billion. Enterprise value includes market capitalization -- the value of a company's shares outstanding, preferred stock, debt and cash.

Talks between the two companies and the Air Line Pilots Association have been sticky, but apparently the union has signed on because it will get a seat on the new Delta board. Seven Delta directors and five Northwest directors would be on the board as well.

The deal will require approval from shareholders and the antitrust division of the Justice Department. Delta has major hubs in Atlanta, Cincinnati and Salt Lake City. Northwest's big hubs are in Minneapolis-St. Paul and Memphis.

At the end of 2007, the companies had a combined 89,000 workers, but Delta said that the work force would be pared to 75,000 if the deal goes through, The Times reported. American Airlines has 85,500 workers.

Before the deal was announced, Delta had closed up 4.7% to $10.48 and was up an additional 3.1% to $10.80 in after-hours trading. Northwest shares added 2.4% to $11.22 in regular trading and an additional 0.3% to $11.25 in after-hours trading.

The next likely merger candidate, United Airlines parent UAL (UAUA, news, msgs), jumped 3.1% to $23.61 in regular trading and an additional 1.7% to $24 in after-hours trading.

Investors believe it is most likely to cut a deal with Continental Airlines (CAL, news, msgs). Continental added 1.3% to $21.89 and was up an additional 2.1% to $22.35 in after-hours trading.

• Video: Talking mergers and airlines

But American Airlines parent AMR Corp. (AMR, news, msgs) was down 1.5% to $9.34. The airline was mostly back to a regular schedule after cancelling thousands of flights last week to fix wiring issues with its MD-80 airliners.

Four smaller airlines have filed for bankruptcy protection in the past few weeks, with only one continuing to operate.

Energy stocks lead the market

If you believe in stocks, the place to be today was energy, with crude oil reaching that new closing high of $111.76 a barrel.

The place not to be was financial stocks, after Wachovia (WB, news, msgs) surprised Wall Street with a big loss and an announcement it needed to raise $7 billion in new capital.

Investors are hoping that some company -- maybe Intel (INTC, news, msgs), IBM Corp. (IBM, news, msgs) or perhaps Google (GOOG, news, msgs) -- will offer a bullish outlook in an earnings report this week that will give stocks a lift.

After treading water for most of the day, stocks faded to small losses at the close, in part because of oil's gains.

Crude oil's gain was great for energy stocks. The Amex Oil index ($XOI.X) was up 2.8% to 1,423. The Amex Natural Gas Index ($XNG.X) was up was up 2% to 648. Oil company Hess (HES, news, msgs) was the S&P leader today with a 9% gain to $101.19. ExxonMobil (XOM, news, msgs) was the top performer among the 30 Dow stocks with a 1.2% gain to $89.70. Chevron (CVX, news, msgs) added 0.6% to $89.30.

But financial stocks were beaten up because of the Wachovia news. Wachovia itself was off 8.1% to $25.55. It was the worst performer among S&P 500 stocks for most of the day. It recovered a bit, however, and closed as the sixth-worst S&P performer. It's down 58% since February 2007.

Because of Wachovia and General Electric's (GE, news, msgs) earnings miss on Friday, the six worst performers in the S&P 500 were financial stocks. The worst of the six was Tennessee banking company First Horizon (FHN, news, msgs), down 11% to $11.65. The Select SPDR Financial (XLF, news, msgs) exchange-traded fund, which mimics the financial sector of the S&P 500, was off 2.4% to $24.54. The ETF is down 15.2% this year.

Crude moved higher as the U.S. dollar fell against the euro, yen and British pound. Adding to the price move higher were supply disruptions in Nigeria. While Royal Dutch Shell said its Capline pipeline, which moves crude oil from the Gulf of Mexico to the Midwest, was restarted today after a leak was fixed, it will take a few days for operations to return to normal.

Crude could move higher on Tuesday. Late today, The Wall Street Journal reported that crude oil production in Russia "has begun to stagnate and even slump."

Russian supply in the first quarter of 2008 fell for the first time this decade, averaging 10 million barrels a day, The Journal said. That is a 1% drop from the year-earlier period, according to the International Energy Agency. That is dismal news for a country that saw double-digit-percentage output growth earlier this decade.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$111.76	$110.14	$1.62	10.02%	16.44%
Heating oil (per gallon)	$3.2029	$3.1975	$0.0054	5.04%	20.89%
Natural gas (per million BTU)	$10.0530	$9.9010	$0.1520	-0.48%	34.34%
Unleaded gasoline (per gallon)	$2.8218	$2.8073	$0.0145	7.85%	13.29%

Some skepticism about tech

Four big tech companies will be reporting first-quarter earnings, and Wall Street is bullish only on IBM.

IBM, which was up 1.1% to $117.28 today, is expected to report a 20% increase in earnings to $145 a share, largely because it gets more than half of its business outside the United States. Non-U.S. business is strong, and converting profits from that will look better because of the falling dollar.

• Video: Big week for tech stocks

Intel was down 2.6% to $20.69 today in part because investors see problems in semiconductors.

EBay Inc. (EBAY, news, msgs) reports after Wednesday's close, but is getting stressed by increasing competition from Amazon.com. Today, however, the shares were up 1.6% to $31.37.

Google was off 1.3% to $451.66 because investors aren't sure it can still produce big profit growth.

Investors brace for financials' earnings

After earnings disappointments last week, with Alcoa (AA, news, msgs) and General Electric reporting profit declines and missing expectations, this week is shaping up as not much better.

"Although positive things are happening in the marketplace, such as the entry of opportunistic buying in fixed income markets, the markets are not out of the woods yet," Thomson Financial said in a note to clients about the first quarter.

"We have been saying that it gets worse before it gets better when we refer to earnings growth numbers. By this we mean that earnings expectations for the remainder of the year are still quite vulnerable to downward revisions."

Earnings growth for financials is expected to fall 64% year-over-year, Thomson said. JPMorgan Chase (JPM, news, msgs) will report on Wednesday, with Merrill Lynch (MER, news, msgs) on Thursday and Citigroup (C, news, msgs) on Friday.

Meanwhile, a weekend report in The Times of London said that more write-downs are coming from Merrill and Citigroup. Citigroup will write down an additional $10 billion in the first quarter, the newspaper reported, bringing its quarterly loss to $3 billion. Merrill, on the other hand, will write down $5 billion, which could mean a $2.7 billion loss in the first quarter, The Times said.

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Banks and financial-services companies have written down $250 billion since the beginning of 2007, the paper reported.

Also reporting on Tuesday are Northern Trust (NTRS, news, msgs) and Dow component Johnson & Johnson (JNJ, news, msgs).

Northern Trust was down 3.3% to $65 today; Johnson & Johnson was down 0.4% to $65.74.

Mortgage losses clobber Wachovia

The bank's net loss for the quarter was $393 million, or 20 cents per share, far worse than the $2.3 billion, or $1.20 per share, the bank earned in the same period a year ago.

Excluding items, Wachovia lost $270 million, or 14 cents per share. Analysts had expected earnings of 40 cents per share. Revenue fell 5% to $7.9 billion in the quarter. Wachovia slashed its quarterly dividend to 37.5 cents a share from 64 cents to save $2 billion annually.

"I'm deeply disappointed with our first-quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," said CEO Ken Thompson.

Wachovia sold preferred shares and other securities in late January and early February in order to boost its capital.

Wachovia's exposure to the mortgage meltdown increased when it bought Golden West Financial -- a company that specialized in nontraditional mortgages -- for $24.2 billion in May 2006. The deal closed at the height of the housing boom.

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Wachovia joins Washington Mutual (WM, news, msgs), Merrill Lynch and Citigroup in raising new capital to be able to withstand the losses from their bad mortgage-related investments.

Retail sales: Better than expected but not all that great

The Commerce Department said retail sales rose 0.2% last month, slightly better than expected and up from a revised decline of 0.4% in February.

The report painted a picture of a consumer whose spending is hardly robust.

Excluding autos, retail sales rose 0.1%, in line with expectations. Sales at gas stations rose 1.1%, while sales of building materials and supplies dipped 1.6%. Department-store sales were flat, and sales at electronics and appliance retailers fell 0.4%.

Investors will have a lot more economic data to digest later in the week. On Tuesday, investors will get a report on the manufacturing sector. On Wednesday, inflation will be in focus, with reports on producer and consumer prices.

Blockbuster goes after Circuit City

Movie-rental chain Blockbuster (BBI, news, msgs) said this morning that it had made an unsolicited all-cash bid for electronics retailer Circuit City (CC, news, msgs) for $6 to $8 per share.

And skepticism about the deal was huge. The headline of John Paczkowski's analysis of the deal on Digital Daily: "CircuitBuster would merge failure with fiasco."

The offer, made Feb. 17, values Circuit City at between $1.01 billion and $1.35 billion. Blockbuster this morning said that it will take the offer directly to shareholders.

"Unfortunately, to date, Circuit City has failed to provide due diligence necessary to allow Blockbuster to make a definitive proposal," Blockbuster said in a statement.

The offer mystified Wall Street. "It's an odd move," Nick Bubb, a retail analyst at Pali International in London, told Bloomberg News. "Synergies between a video store and an electronics store aren't that obvious." And, he added, Circuit City's financial health is poor.

Shares of Circuit City were up 27% to $4.97; shares of Blockbuster were down 10% to $2.81.

The offer has the backing of activist investor Carl Icahn, who has offered to provide financing for the deal if Blockbuster can't get financing elsewhere, The Wall Street Journal reported.

Short hits from the markets -- 4 p.m.

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.075%	1.160%	-0.085	-20.37%	-65.76%
5-year Treasury note yield	2.586%	2.574%	0.012	2.01%	-25.15%
10-year Treasury note yield	3.503%	3.471%	0.032	1.07%	-13.18%
30-year Treasury bond yield	4.341%	4.302%	0.039	-0.09%	-2.65%
Currencies
U.S. Dollar Index	72.130	72.065	0.065	-0.05%	-5.95%
British pound in dollars	$1.9810	$1.9670	0.0140	-0.14%	-0.42%
Dollar in British pounds	£0.5048	£0.5084	-0.0036	0.14%	0.42%
Euro in dollars	1.5840	1.5711	0.0129	0.57%	8.38%
Dollar in euros	€ 0.6313	€ 0.6365	-0.0052	-0.57%	-7.73%
Dollar in yen	¥100.95	¥101.23	-0.28	1.14%	-9.75%
Canadian dollar in U.S. dollars	$0.981	$0.974	$0.0067	0.32%	-1.22%
U.S. dollar in Canadian dollars	$1.020	$1.026	-$0.0062	-0.33%	1.24%
Commodities
Gold	$928.70	$927.00	$1.70	0.18%	10.82%
Copper	$3.8975	$3.9445	-$0.05	-1.19%	28.17%
Silver	$17.7900	$17.6900	$0.10	0.57%	19.24%
Corn	$5.9175	$5.8425	$0.08	4.32%	29.91%
Crude oil (NYMEX) (per barrel)	$111.76	$110.14	$1.62	1.47%	16.44%