Icahn Tops Texas Air’s Bid for TWA : Offers $24 Per Share in Cash and Securities for Remaining Stock
Corporate raider Carl C. Icahn on Monday renewed the bidding war for Trans World Airlines, announcing that he was topping a competing offer by Texas Air Corp. and that two of TWA’s major labor unions have tentatively agreed to pay cuts if his bid prevails.
Icahn, who already has bought 33.7% of TWA for about $180 million, offered $24 a share in cash and securities for the airline’s remaining shares in a deal that could cost him as much as $706 million more.
The offer tops a $23-a-share, $793.5-million bid by Texas Air, which already owns about 6.3% of TWA and controls Continental Airlines and New York Air. Texas Air’s offer, which would create the nation’s second-largest airline following United Airlines, was unanimously accepted in June by TWA’s board to thwart an earlier Icahn offer of $18 a share.
Must Win Approval
However, Texas Air’s bid must win approval of TWA’s shareholders, and Icahn said Monday that he intends to vote all of his TWA shares against the Texas Air proposal and may acquire additional shares on the open market. That might force Texas Air to concede the battle or sweeten its own bid, analysts speculated.
Whoever wins, the deal would be the biggest airline acquisition in history.
Icahn, who paid an average price of $16 a share for his TWA stock, had indicated earlier to Wall Street sources that his final profit could be about $50 million if he sold his shares to Texas Air for $23 a share.
If Icahn were to win, he would be in control of an airline whose prospects would be much stronger with labor cost concessions, analysts said. Those concessions would also make the carrier more attractive to another buyer should Icahn decide to resell it, a possibility that he left open in his comments Monday.
TWA’s common stock rose 50 cents a share Monday to close at $22.625 on the New York Stock Exchange, while Texas Air’s common fell 25 cents a share to close at $17.75 on the American Stock Exchange.
A spokesman for Icahn said the financier reserved the right to withdraw his offer by Thursday if TWA’s board does not agree by then to submit it to shareholders if the Texas Air bid is rejected.
No date has been set for the shareholder vote on the Texas Air proposal. Texas Air had agreed that the takeover would be completed by December, the deadline for the federal Department of Transportation to decide whether to approve the takeover.
Texas Air spokesman Michael Cinella said the Houston-based firm is “reviewing the situation” and would not comment immediately on the Icahn offer. Ulrich Hoffmann, TWA’s general counsel, said the firm also would have no immediate comment.
Icahn’s bid comes despite a clause in the TWA-Texas Air merger agreement designed to discourage competing bids. The clause gave Texas Air the option to buy 6.43 million unissued TWA common shares at $19.625 each.
Texas Air presumably would exercise the option if Icahn wins the takeover battle, thus forcing the New York financier to pay $154 million more and giving Texas Air a profit.
May Sweeten Offer
Without the clause, Icahn would only have had to pay $552 million for the 23 million common shares outstanding that he does not already own. TWA also has 6 million additional common shares that could be created through conversions of other securities, possibly costing Icahn another $144 million.
Airline analysts suggested, however, that rather than take a profit, Texas Air might sweeten its own offer. Texas Air wants TWA’s international routes to compliment Continental’s domestic route system and create a global airline serving the Pacific and Atlantic oceans.
Hoping to increase chances that his offer would be accepted, Icahn structured it so that it carried similar terms to Texas Air’s offer.
He offered to exchange $19.50 in cash and $4.50 worth of a new issue of preferred stock in TWA for each TWA common share. Texas Air is offering $19 in cash and $4 worth of a new issue of TWA preferred stock.
The labor concessions also “look very good for TWA surviving as an independent and profitable carrier,” said Louis Marckesano, airline analyst with the Philadelphia securities firm of Janney Montgomery Scott.
With among the highest costs in the airline industry, TWA has been unable to win significant labor-cost concessions. Texas Air is expected to seek such concessions if it wins the TWA takeover battle.
Pay Cuts for Stock, Profits
Harry Hoglander, head of the Air Line Pilots Assn. unit that represents TWA’s 3,400 pilots, said the concessions are designed to save the company about $300 million annually.
The labor pacts call for the pilots union and the International Assn. of Machinists to take pay cuts in exchange for 20% of TWA’s stock and 20% of its after-tax profits, Hoglander said.
The pilots union would take a 22% pay cut and 4% cut in benefits, Hoglander said, while the machinists would take somewhat lower cuts. In July, the pilots had agreed to 22% pay cuts, without benefit cuts, Hoglander said.
The new agreements are subject to ratification by the unions’ members, but Hoglander said he was “confident” the pilots would approve the deal.
“We don’t want to work for Lorenzo,” Hoglander said, referring to Texas Air Chief Executive Francisco A. (Frank) Lorenzo, who irked airline labor leaders in 1983 when Continental filed for protection under Chapter 11 of the U.S. Bankruptcy Code and subsequently abrogated labor contracts and slashed wages.
The union representing TWA’s flight attendants also is in negotiations with Icahn, sources said.
