Delta-Northwest flying tight; resolute Microsoft talks proxy bid; Staples makes offer for Corporate Express

By Aaron Hochman-Zimmerman

New York, Feb. 19 - Delta Air Lines and Northwest Airline pushed closer towards their merger as each side called general board meetings and union officers hammered out deals over pilot seniority.

Microsoft Inc. showed its persistence and determination to begin in earnest its fight over the web search market with Google Inc. as it prepared to start a proxy fight with Yahoo! Inc.

Clear Channel Communications Inc. filed a lawsuit against Providence Equity Partners claiming Providence backed out of a deal to buy 56 television stations from Clear Channel.

The Netherlands' Corporate Express NV was one of the big winners as Staples Inc. came after their office supply rivals.

In trading, "it was a pretty quiet day," a market source said.

After bouncing throughout most of the day, the Dow Jones Industrial Average fell only 10.99 or 0.09% to close at 12,337.22 while S&P 500 lost 1.21 or 0.09% to close at 1,348.78.

The Nasdaq Composite Index lost 15.60 or 0.67% to close at 2,306.20.

Delta-Northwest on final approach?

The union between Delta Air Lines (NYSE: DAL) and Northwest Airlines (NYSE: NWA) looked like more of a reality on Tuesday. Delta shares were lower by $0.55 or 3.18% to $16.77 and Northwest stock fell $0.23 or 1.34% to close at $16.97.

The boards of both carriers held emergency meetings, a market source said.

One of the long-anticipated sticking points of the deal was the approval of the pilot's unions.

However, the board of Delta will hear a proposal from its union which includes demands for a voting seat on the board of the new airline as well as a 7% equity stake, the source said.

Representatives of the unions themselves have already worked out an arrangement to blend the status of their members, reported the Detroit News.

Many market watchers feel that a successful deal between Delta and Northwest will start a renewed push for airline consolidation.

"[The merger] may not make sense," a market source said.

The Delta and Northwest fleets may not match well, so there may be little cost savings, he said.

However, "they still have to buy fuel," another market source said.

Microsoft still on Yahoo! trail

Microsoft's chairman Bill Gates refused to stay quiet as Yahoo! snubbed his company's $44.6 billion offer.

Microsoft (Nasdaq: MSFT) stock fell $0.14 or 0.49% to $28.17, while Yahoo! (Nasdaq: YHOO) stock was lower by $0.65 or 2.19% to $29.01.

Gates called the offer "very fair," a market source noted, and hoped Yahoo! would reconsider .

Gates indicated that Microsoft will pursue business in the field of web searches with or without Yahoo! in order to challenge Google's (Nasdaq: GOOG) internet clout. Google stock lost $20.69 or 3.91% to close at $508.95.

Still, Microsoft began the makings of a proxy fight on Tuesday.

The proxy maneuver may cost Microsoft $20 million to $30 million, a market source said, but fitting through that window may be cheaper than bringing a better offer [than $44.6 billion] to the door.

"Microsoft will eventually pay just a tad more," a market source said.

Staples' fangs out for Corporate Express

Shares of Staples Inc. (Nasdaq: SPLS) were better by $0.11, or 0.5%, to close at $22.15 as the office supplier offered €2.5 billion to the Netherlands' Corporate Express NV.

Corporate Express' (NYSE: CXP) shares rifled skyward by $3.15 or 38.94% to $11.24.

"The all-cash proposal represents a premium of approximately 67% to Corporate Express' Feb. 4, 2008 closing share price, the last day before rumors of a potential sale circulated in the market," according to a Staples press release.

"Staples is committed to working with the Corporate Express executive and supervisory boards to quickly enter into an acquisition agreement and begin making the most of the combined business," Staples chairman and chief executive officer Ron Sargent said in the release.

Clear Channel files suit

Coming off a bounce from positive fourth quarter numbers, Clear Channel (NYSE: CCU) shares dropped $1.28 or 3.96% to close at $31.07 on the news of a lawsuit over the $1.2 billion offer by Providence Equity Partners for Clear Channel's television assets.

The suit is Clear Channel's attempt to ensure the completion of the sale of 56 stations, from which it claims Providence backed away, a market source observed.

Providence called the lawsuit "baseless," the market source said.

Meanwhile, Clear Channel has approved a $20 billion leveraged buyout by Thomas H. Lee Partners and Bain Capital Partners.

TierOne ready, waiting on Treasury

Stock of CapitalSource's (NYSE: CSE) gained $0.45 or 2.74% to close at $16.89 while TierOne Group (Nasdaq: TONE) stock ended lower by $2.23 or 12.82% at $15.17.

It was announced on Sunday that either side could kill the CapitalSource takeover of TierOne.

Still, while the deal is awaiting approval from the Department of Treasury's Office of Thrift Supervision, "the board of directors of TierOne Corp. announced [Monday] that it reaffirms its commitment to complete its merger transaction with CapitalSource Inc. and is now awaiting additional comments on the merger application from its federal regulatory agency," TierOne said in a press release.

Banks for sale?

Last week's rumors of a foreign buyer engaging in talks with Bear Stearns Cos. (NYSE: BSC) produced little more speculation, but "we'll probably get a bunch of those," a market source said as banks continue their multi-billion dollar write-downs.

Bear Stearns stock was lower by $2.77 or 3.35% to close at $80.02.

Credit Suisse (NYSE: CS) was the latest credit crisis victim as it posted a $2.7 billion write-down. Its stock lost $2.66 or 5.23% to close at $48.22.

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