Business Case Studies & Business Publications

Atlas Air: Shipping at Preferred Cost

Loutskina, Elena, ...

Case

Atlas Air: Shipping at Preferred Cost

Loutskina, Elena; Shah, Jigar

F-2057 | Published October 17, 2023 | 25 Pages Case

Collection: Darden School of Business

Add To Cart Buy Now

Product Details

The case is centered on a July 2022 bid from a private equity consortium led by Apollo Global Management (Apollo) to acquire Atlas Air, a major transportation company whose services spanned commercial cargo, passenger charters, and aircraft leasing. The protagonist is facing the difficult task of crafting a recommendation to Atlas Air’s board regarding Apollo’s bid. Apollo’s courting of Atlas Air started more than a year before. On June 1, 2021, Apollo’s team offered $83.50 per share, which at that time represented a 11.4% premium to Atlas Air’s market share price of $74.93. Since then, Atlas Air rejected four successive acquisition offers. The last bid of $101 per share, submitted on July 29, 2022, was six dollars below the $107 bid the same syndicate offered just two months prior on May 19, 2022. The case allows students to evaluate the value the drivers of a leveraged buyout (LBO) bid. In particular, it offers a nice setting for assessing the impact of changing interest rates, because the interest rate environment has changed dramatically from the first bid submitted by Apollo to the last one. The case also introduces preferred equity as one of the components in an LBO financing stack. It creates fruitful ground for assessing how preferred equity can boost the sponsors’ ability to bid for a company in an LBO. This case has been successfully taught at the University of Virginia Darden School of Business in “Private Equity,” a second-year elective course in the MBA program. This case facilitates a discussion of LBOs and the practical application of LBO modeling. Students gain experience with analyzing the effects of various instruments within the capital stack and understanding their effects on return.

- Understand the principles of LBOs and how they can create value. - Explore the mechanics of debt-schedule modeling. - Understand the importance of revolving debt facilities (revolvers) in LBOs. - Explore the role of preferred equity in LBO. - Understand the “capital stack” and the conflicts that may arise.