With the rising costs of fuels, many airline companies seem to be grounded, some literally.  However, one merger has brought on not only a way to battle the ever so large economic struggle of the airline industry, but will have created the world’s largest airline.  Delta Airlines (NYSE: DAL) and Northwest Airlines (NYSE: NWA) have officially joined together in a union that will parent 75,000 employees with revenues of $35 billion.  

The $17.7 billion Delta Air Lines Inc. merger with Northwest Airlines Corp. is done.  However, as it may seem that this much anticipated deal would be good for both companies, Delta shares have undergone quite the drop in share prices today with over a 13% decline.  Northwest shares also fell, but just under 9%.  The companies, that jointly announced their merger last night at 8 PM EST, will keep Delta’s headquarters out of Atlanta and foresee no hub closures.  Collectively, the two airlines will oversee a fleet of 800 airplanes with flights to more than 390 destinations in 67 countries.

The deal will grant that each Northwest share will be exchanged for $1.25 Delta shares, a 16.8%  premium based on today's closing price.  With this merger, it is predicted a one-time cash costs of no more than $1 billion to integrate the two airlines. However, the deal is expected to generate more than $1 billion in annual revenue and cost cuts from more effective aircraft utilization, a more comprehensive and diversified route system, reduced overhead and improved operations.  Delta CEO Richard Anderson, who had also served as a former CEO of the Eagan-based Northwest Airlines, will remain CEO of the new Delta.  Delta Chairman of the Board Daniel Carp will become chairman of the new board, Northwest Chairman Roy Bostock will become vice chairman and Delta's Ed Bastian will be president and CFO.  

This new merger between Northwest and Delta Airlines will Delta will maintain executive offices in Atlanta (as the company’s headquarters), Minneapolis/St. Paul and New York, and international executive offices in Amsterdam, Paris and Tokyo.

The airlines said small U.S. communities will now have better access to more destinations across the globe and will benefit from the combined carriers' complementary route networks.  However, there are many concerns, especially in  a time of tight budgets and strict government regulations.  Northwest and the state of Minnesota are to maintain current hubs and headquarters, and if Northwest fails to abide by this, the company would owe the state $240 million and lose a package worth $200 million. After the merger was announced Monday evening, Minnesota’s Gov. Tim Pawlenty issued a statement claiming that "We will be closely scrutinizing the impact of the merger and will strongly stand up for Minnesota's interests during the review process."

With such a merger as this,  there are some issues to be dealt with concerning the unions of the two airlines who were unable to come to an agreement on combining seniority lists. Seniority determines pay and flight assignments, and Delta's pilots (generally younger than Northwest's) had worried that they would receive the short-end of the stick.  Officials had wanted the pilots to agree prior to a deal, but faced with ever-rising operating costs ultimately decided to move ahead with the merger without an agreement.

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Affymetrix, Inc. (NDAQ: AFFX) shares plummeted after the company reduced its first quarter expectations to $170 million, including an intellectual property payment of $90 million. The life sciences company also reduced its full-year estimates from an earlier range of $505 million to $525 million to a new range of $490 million to $510 million. The reduction comes as a result of lower research spending by pharmaceutical and industry customers.

The troubled Affymetrix is currently exploring ways to reduce expenses in order to at least partially offset the impact of this revenue reduction. So far, it has laid off 23 people in West Sacramento and plans two more rounds of job cuts in the near future in order to further reduce its operating expenses and overhead. More extreme measures could be taken in the future if revenue reductions continue to persist.

Currently, Affymetrix trades at around 60x earnings for 40x future earnings. Its lackluster growth rate gives the stock a PEG of 1.36, which means it may be slightly overvalued. The company also lags its peers with a 3.3% growth rate compared to a 10.3% growth rate for its peers and a 6% growth rate for its nearest competitor. Affymetrix's operating margins are also well below their peers despite a higher growth margin. This suggests that its costs tend to be higher than its peers and could be substantially lowered in order to more effectively compete.

Perhaps the only largest upside is the massive amount of cash on the books. Affymetrix has a whopping $494 million - or $7.13 per share - in cash on its books. This accounts for nearly 70% of the stock's current market value. Clearly, value could be unlocked here if the company began a share buyback program or distributed a special dividend. Combined with cost cutting measures, this stock could quickly become one worth watching!

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Blockbuster Inc. (NYSE: BBI) announced that it offered to acquire Circuit City Stores, Inc. (NYSE: CC) today for at least $6.00 in cash, subject to due diligence. However, Circuit City failed to provide the due diligence necessary to make a definitive proposal and effectively blocked any transaction. Now, Blockbuster is making the proposal public in order to put pressure on the electronics retailer and allow shareholders to participate in the destiny of the company.

"Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage. We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies," said Blockbuster Chairman and CEO Jim Keyes.

Blockbuster insists that the combination of the two companies would result in an $18 billion global retail enterprise uniquely positioned to capitalize on the growing convergence of media content and electronic devices. It would also allow both companies to benefit from the revenue growth generated by their complementary products, while the resulting synergies would substantially improve consolidated financial performance, thereby increasing shareholder value.

Given Circuit City's $3.90 per share price, this transaction would represent a substantial premium for shareholders. Meanwhile, Blockbuster shareholders would benefit from an obvious diversification away from the troubled DVD rental market and into consumer electronics. In the end, Circuit City shares may be depressed but a turnaround could take years to affect. As a result, this is an offer that will definitely be considered.

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