Texas Air Resists Deal to Cancel TWA Merger

A major stumbling block to an agreement for Texas Air Chairman Francisco Lorenzo to ease gracefully out of his all-but-dead merger pact with Trans World Airlines apparently concerns an attempt to restrict his future investments in the airline, sources close to the situation said Wednesday.

The obstacle is only one of the differences separating Lorenzo and his rival for control of TWA, financier Carl C. Icahn, the sources said.

Last Friday, Icahn announced that his holdings in TWA had topped 50%, giving him effective control of the nation’s fourth-largest air carrier. At that time, lawyers for TWA and Texas Air had all but reached an agreement to nullify a merger deal between the two airline companies.

After the weekend, however, it appeared that Lorenzo was refusing to sign the agreement. If Lorenzo retreated voluntarily from the merger deal, a shareholder vote--which he would certainly lose without Icahn’s majority block--would not be required.

Restriction on Investment

Under one of the provisions of the draft agreement--the one that reportedly troubles him the most--Lorenzo would specifically be restricted from any future investment in TWA for a certain period.

“He couldn’t buy any stock or other assets of equity of TWA,” said one source. “The restriction would run for about six years.”

“That doesn’t surprise me in the least,” Robert Joedicke, airline industry analyst with Shearson Lehman Bros., said of Lorenzo’s opposition to the clause. “He’s a wily maneuverer. He probably bridled at any restrictions that might hamper any future opportunities. He likes to keep his options open.”

A spokesman for Texas Air, Bruce Hicks, denied that any final agreement had been reached last week and that Lorenzo had subsequently reneged.

“You can’t renege from an agreement that has not been completed,” Hicks commented. “We don’t feel the agreement proposed is good for Texas Air.”

Hicks did confirm that “we have been negotiating with Icahn and TWA, looking towards a possible agreement which would provide for the termination of our merger agreement with TWA.”

Profits From 6% Stake

At stake in the talks is the amount that TWA will pay Texas Air for withdrawing from the merger agreement, which was originally made in part to keep Icahn from winning control of TWA. Also being discussed are Texas Air’s profits from its 6% holding in TWA and various stock options promised it under terms of the merger pact.

Hicks added that Lorenzo continues “to be troubled by the low price Mr. Icahn is offering for TWA to the minority shareholders. We believe TWA is worth more. . . . We are going to continue to analyze our position carefully, keeping in mind that Texas Air still has the higher offer on the table and has a merger agreement with TWA.”

Icahn has offered $24 per share in cash and notes for the 49.7% of TWA shares that he does not own. Texas Air’s offer, still in force despite Icahn’s majority holding, is for $26 per share in cash and notes. TWA common stock closed at $22.125 Wednesday, down 25 cents.

Another source close to the negotiations, who also asked not to be identified, said Lorenzo’s reluctance now to complete the deal is “strange” since Texas Air’s lawyers wrote the draft pact.

Icahn said in a telephone interview Wednesday that “we intend to push ahead with our plans to own the airline.”