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Higher Takeover Bids Expected; Davis Reportedly Meets With UAL

August 11, 1989

CHICAGO (AP) _ UAL Corp. will likely face several suitors with sweeter offers than the $5.4 billion bid by California investor Marvin Davis, analysts say.

Some expect the airline company’s management to come through with its own takeover bid that would include the participation of employees of United Airlines, UAL’s biggest subsidiary.

But Davis met with UAL representatives Thursday night at an airport in New York to discuss terms of the $240-a-share proposal for the first time, The New York Times reported in today’s editions.

The newspaper, quoting people familiar with the offer, said Davis was telephoned by UAL representatives about the board’s decision Wednesday to explore ″all possible financial and strategic alternatives″ for its future.

The newspaper said Davis did not expect UAL to be receptive to the offer. Davis and one of his key advisers in the deal held a series of meetings to prepare their presentatiion to UAL Thursday night.

The newspaper provided no other details of the meeting in New York.

UAL spokesman Rob Doughty said he could not comment on the report.

Kevin Murphy, an airline analyst with Morgan Stanley & Co. in New York, said Davis’ offer was at the low end of an acceptable bid for UAL, which he estimated could fetch $300 a share, or $6.75 billion.

A leveraged buyout by management is emerging as the most popular scenario among industry observers in the wake of UAL’s announcement Wednesday.

Analysts said UAL’s management, employees and the company’s largest shareholder, financier Saul Steinberg, might join forces in a leveraged buyout.

In a leveraged buyout, a management group buys a company mainly with borrowed money, which it usually pays back by selling some of the company’s assets or with its cash flows.

Steinberg, whose Reliance Group Holdings Inc. has a 6.9 percent stake in the company, is a longtime business associate and friend of UAL Chairman Stephen M. Wolf.

UAL’s long-running labor disputes with its pilots and flight attendants - the pilots have been without a contract for nearly 1 1/2 years, the flight attendants for about two years - could provide an incentive for management to invite employees to join forces in a buyout.

″That might be a feature of a labor settlement,″ said analyst Robert Decker of Duff & Phelps Inc. in Chicago. ″It would be a way for Mr. Wolf to aproach his unions and give them a stake in the company with financial benefits, as well as a way of increasing employee loyalty.″

Sara Dornacker, a spokeswoman for Chicago-based UAL, said she could not comment on the possibility of a management takeover.

The United pilots, who made their own buyout offer nearly two years ago, have asked their financial and legal advisers to study the situation, said their spokeswoman Kathie Hardin.

Leaders of United’s flight attendants union local were out of town and not immediately available for comment.

UAL’s stock rose $7.25 to $251.12 1/2 a share Thursday on the New York Stock Exchange, reflecting speculation that richer proposals would emerge. The stock ended last week at $164.50 a share.

Pan Am Corp., which has been seeking a merger partner, is interested in bidding for UAL, according to its chairman, Thomas G. Plaskett. The financially weak airline company unsuccessfully proposed a merger earlier this year with NWA Inc., parent of Northwest Airlines.

Another potential bidder, analysts said, is the powerful New York investment firm Kohlberg, Kravis, Roberts & Co., which, like Davis and Pan Am, bid unsuccessfully for NWA earlier this year. NWA eventually was purchased by an investor group led by Alfred Checchi.

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