TWA Seeks ‘White Knight’ to Thwart Icahn Takeover

The board of Trans World Airlines put the nation’s fifth largest airline up for sale Tuesday, apparently seeking a friendly buyer to fend off an unwanted takeover by New York corporate raider Carl C. Icahn.

The board said that it was inviting bids higher than the $18 a share offered by Icahn for the 75% of the company not already owned by him and an investment group that he controls. It acted just hours after TWA suffered a major setback in its fight to stay independent of Icahn when a federal judge refused to halt the investor’s takeover attempt.

TWA said that its investment advisers, the New York investment house of Salomon Bros., had told it that the $18 offer was inadequate. It added that there had been expressions of interest from other companies.

There have been reports that Eastern Airlines and Texas Air Corp., the parent company of Continental Airlines, had been among those considering a counteroffer for TWA.

Richard McGraw, Eastern’s senior vice president for communications, had earlier dismissed the report about his company as “ludicrous.” But, after the TWA board’s announcement, he said that Eastern was “assessing” its interest. TWA President and chief executive C. E. Meyer Jr. had telephoned Eastern’s chairman and president, Frank Borman, to inform him of the TWA board’s decision, he said.

Texas Air refused to comment.

TWA is only the latest company to do battle with Icahn, whose reputation as a savvy corporate raider was earned during takeover fights at such companies as Phillips Petroleum, tire maker Uniroyal, retailer Marshall Field & Co. and consumer-goods firm Chesebrough-Pond’s. Although those attempts were unsuccessful, he often profited handsomely as the target firms were forced to restructure or merge with other companies. Icahn was recently successful in taking over ACF Industries, a New York rail-car and automotive-parts manufacturer. TWA said that, in order to “maximize value for TWA shareholders,” the board had instructed its management and Salomon Bros. “to actively pursue alternatives that would afford the company’s shareholders an opportunity to participate in a transaction superior to the Icahn proposal and that would also be in the best interests of TWA’s employees, the communities it serves and the traveling public.”

The best proposal received will be submitted to shareholders, TWA said. If it does not receive an offer better than Icahn’s within 60 days, the board’s statement said, TWA will put the Icahn offer to a vote by the shareholders under certain conditions:

--Icahn must have financing lined up for the $600 million or so that he will need to complete his $18 offer for the shares that he does not control. Icahn indicated when he made his offer that he had $400 million available and that, if he does not have the remaining $200 million by the time that voting material is sent to TWA shareholders, he would leave TWA alone for two years.

--The Department of Transportation must raise no objections to Icahn’s fitness to run an international airline and there must be no other legal restrictions in effect. TWA has told the Department of Transportation and Congress that it believes Icahn would lead the airline to bankruptcy. It has asked the department to hold hearings on the issue.

--Icahn must agree, as he has stated in filings with the Securities and Exchange Commission, that he will vote the shares he controls in favor of his proposal “only if it were approved by the holders of a majority of the company’s other outstanding shares.”

With TWA openly soliciting bids or bound, under those terms, to let its shareholders vote on the Icahn offer, it seems extremely likely that control of the company will change hands.

Louis Marckesano of the Philadelphia brokerage house of Janney Montgomery Scott said that TWA’s board might be doing one of two things: genuinely trying to find a friendly buyer--a “white knight” in the jargon of corporate takeovers--or trying to delay any action by Icahn until the Department of Transportation or Congress can act.

A bill has been introduced in the House that would prevent Icahn from proceeding with his takeover, and similar action has been promised in the Senate.

Marckesano said he thought that $22 a share was a fair price for TWA.

Meanwhile, Icahn said that he was “gratified” by U.S. District Judge John M. Cannella’s refusal to grant an injunction blocking him from further purchases of TWA stock or voting the stock that he already controls. He refused to say whether he had bought more stock Tuesday.

“I won’t comment on that,” he said. “I won’t confirm or deny it.”

Robert Joedicke of Shearson Lehman Bros. said he believed that Icahn had bought more shares and that “as he owns more and more stock of TWA, it will become increasingly difficult to buy him out.”

On Tuesday, 747,500 shares of TWA changed hands and the stock rose by $1.37 1/2 to $17.75.

In his decision, Judge Cannella ruled that Icahn had not violated any securities laws in his filings with the SEC, as TWA had charged, and thus had done the airline “no irreparable harm.”

TWA had also maintained in a hearing before Cannella on Friday that Icahn intends to dismantle TWA and sell off its assets despite his pronouncements to the contrary. In more than two hours of testimony, Icahn conceded that when he first began buying TWA stock he did intend to sell off some of its assets and cut some routes but that he had changed his mind after consulting with TWA’s management.

“The court has reviewed the record and listened to the testimony and finds Icahn to be credible,” the judge said Tuesday. “It is not unreasonable for him to have changed his mind.