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TWA Reported Ready to OK Texas Air Merger

Reuters

Trans World Airlines, which has been fighting a takeover by investor Carl C. Icahn, was expected to approve today an $874-million merger with Texas Air Corp., Wall Street sources said Wednesday.

The merger would give each TWA stockholder $19 per share in cash and $4 per share in high-yield notes and would produce a giant airline with a fleet of more than 300 planes.

TWA would be operated as a wholly owned subsidiary of Texas Air, which is the parent of Continental Airlines and New York Air. TWA would retain its current management and name.

The new company would be headed by Francisco Lorenzo, chairman of Texas Air, sources said.

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(Reached at his home by The Times late Wednesday, William Moran, vice president of Continental Airlines and a spokesman for Texas Air, said: “My god almighty, I don’t know anything about this.” After an unsuccessful attempt to reach Lorenzo, Moran said he could not confirm or deny the report. TWA officials could not be reached for comment Wednesday night.)

Wall Street sources said Icahn had been informed of the Texas Air offer and was expected to agree. Icahn holds 32.77% of TWA and said several weeks ago that he would propose an $18-per-share offer for the company.

(If Icahn sells his stake in TWA, which he acquired at an average price of about $16 per share, he would realize a profit of about $78.6 million.)

TWA had also been considering a takeover offer by casino owner Resorts International Inc., which sources had placed at about $22 per share.

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Wall Street sources said TWA and Texas Air are a perfect match because the combined airline would have four hubs: Texas Air’s centers in Houston and Denver and TWA’s in St. Louis and New York.

The airlines have few overlapping routes. Continental operates mainly in the South and Southwest and has flights to New York, as well as flights to the South Pacific, including Australia and New Zealand.

TWA has east-west routes across the United States and has a substantial network across Europe. Texas Air’s New York Air unit has north-south flights on the East Coast.

Wall Street sources said that no antitrust problems are expected in the deal.

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Besides the Resorts offer, TWA had also considered the possibility of a leveraged buy-out that would include the company’s employees.

Sources said other airlines had also expressed an interest in the carrier. Eastern Airlines said it was interested but later said it would not enter a merger with TWA.

Analysts have said that a leveraged buy-out would be too costly for TWA, which has a debt-to-equity ratio of more than 60%.

They also mentioned that whoever acquires TWA would have the liability of its costly union contracts. Analysts estimate that TWA’s labor costs are the highest in the industry.

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TWA is now in mediation with its 7,000 flight attendants and 11,000 machinists.

Wall Street sources said the Texas Air proposal includes no agreements on the union contracts, and TWA is expected to continue its negotiations.

Earlier Wednesday, a temporary restraining order that would have barred Icahn from proceeding with further stock purchases or takeover activity was lifted by St. Louis County Circuit Judge Bernhardt Drumm.

TWA has fiercely fought Icahn and had vowed not to present his offer to shareholders until all options had been exhausted.

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TWA had unsuccessfully tried to have the U.S. Transportation Department declare Icahn unfit as an operator for the airline.

For 1984, TWA earned $29.9 million on revenue of $3.7 billion, up from a loss of $12.4 million on revenue of $3.4 billion.

Last year, Texas Air earned $27.8 million on sales of $1.37 billion.


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