Texas Air Tops Icahn Bid for TWA; Analysts Skeptical of Its Chances

Texas Air Corp. escalated the bidding war for Trans World Airlines on Friday, topping by $2 per share a competing offer by corporate raider Carl C. Icahn. But some industry observers said the new offer may be moot, given that Icahn is close to acquiring majority control of the airline company.

Texas Air’s new, $26-per-share offer, valued at about $1.06 billion with the inclusion of preferred shares, tops Icahn’s $24-per-share offer made earlier this week. Texas Air, which owns 6.3% of TWA and controls Continental Airlines and New York Air, previously had reached an agreement with TWA to buy the carrier for $23 per share, or $938 million including preferred stock.

Icahn, however, said Friday that he may increase his stake above the 45.54% that he reported Wednesday. The New York financier merely has to go over 50% to make Texas Air’s new offer largely academic, analysts said.

TWA’s bylaws allow for a majority shareholder to quickly call a special shareholders’ meeting, possibly to assume control, a TWA official said.

“If he’s got 50%, he doesn’t care (about Texas Air’s bid),” said Robert Joedicke, airline analyst at Shearson Lehman Bros. “He controls the company.”

Pay Cuts Agreed To

Analysts said it was unlikely that Icahn would sell his stake to Texas Air rather than assume control, even though he could earn well over $50 million from doing so. Two of TWA’s major unions, representing pilots and mechanics, have agreed to pay cuts if Icahn takes over, creating cost savings that would make the carrier much more profitable.

Icahn also agreed that half of any profit in selling his shares to Texas Air above $21 per share would go to the unions.

“The temptation is real for him to go ahead and take over,” said Louis Marckesano, airline analyst at Janney Montgomery Scott. He said TWA could earn $136 million next year, after preferred dividends, compared to a $32-million loss without the labor concessions.

Investors apparently did not think Texas Air’s new bid would survive, as TWA stock closed up only 50 cents per share to $22.50 Friday.

Texas Air’s new offer calls for payment of $20.50 in cash and $5.50 in a new issue of TWA preferred shares for each current TWA share. Its old offer would have paid $19 cash and $4 in securities.

TWA said in a brief statement that its board would meet next week to evaluate the bids. TWA also said it hoped that Icahn would abide by his June 13 statement that he does not intend to be a “spoiler” to prevent other TWA stockholders from taking advantage of the best available bid.

TWA would not elaborate on that statement, but sources suggested that it was a concession by the airline company that Icahn was winning the takeover battle. The carrier hopes that Icahn will at least preserve his $24-per-share offer even if he obtains majority control, the sources said.

Texas Air Holding Out Hope

Icahn could withdraw his offer because TWA did not agree by last Thursday to put it to a shareholder vote, as Icahn had stipulated.

Analysts speculated that Texas Air made its new bid in hopes that Icahn might sell his shares or raise his own bid, or that TWA shareholders might vote to approve the Texas Air bid.

Texas Air spokesman Bruce Hicks said the firm still is operating under a June 13 merger agreement with TWA under which Texas Air’s $23-per-share offer would be brought to a shareholder vote, probably in mid-September. The only change is that the offer now is $26 per share, he said.

The record date for shareholders to be eligible to vote is July 25, when Icahn had only 34.4% of TWA’s stock. That leaves open the remote possibility that Texas Air still could win the vote, particularly now that its offer tops Icahn’s.

TWA had agreed to pay Texas Air $18 million if it breaks the pact.

Texas Air, however, faces a time problem in that it may have to wait until December before the Transportation Department decides whether to approve its acquisition of TWA. The department Friday denied an application for an expedited hearing on the merger.

Icahn’s virtual control of TWA also appears to preempt another offer for TWA by a group of employees concerned about keeping jobs in Missouri, where TWA has major operations.