Texas Air Sweetens Its Bid for Frontier Parent
Texas Air Corp. on Friday sweetened its offer to acquire Frontier Holdings, parent of Frontier Airlines.
In a letter to Denver-based Frontier, Texas Air said it would purchase all of the shares tendered to it by Frontier Holdings shareholders for $20 each, excluding 1.5 million of the 6 million shares owned by RKO General, a subsidiary of Gencorp (formerly General Tire & Rubber Co.). Texas Air said it would purchase those shares if the deal is approved by the Transportation Department.
In its earlier offer announced Sept. 19, Houston-based Texas Air had said it would take only up to 56% of shares tendered immediately for $20 each, purchasing the rest for the same price after the Transportation Department approved the acquisition. Both offers would be worth $250 million when all shares are purchased. Texas Air already owns 6.4% of Frontier’s 12.5 million shares outstanding, while RKO owns 45%.
Texas Air’s offer is competing with an earlier proposal by four of Frontier’s employee unions. They had offered to buy the airline for $17 a share in exchange for wage and other concessions.
Texas Air had said that its earlier offer would be conditioned in part on its reaching a stock-merger agreement with Frontier, thus precluding a hostile offer.
Frontier spokeswoman Sandra Allen said the firm had not yet received the letter containing the new Texas Air offer and would have no comment until its board meets next week.
Gencorp spokesman James T. Ritchie said the new Texas Air proposal “further complicates the situation.” He added that “we’ve made no secret of it, we have wanted to dispose of this investment for a long time.”
Frontier, beleaguered by intense competition and high costs, lost $31.8 million last year but earned $20.6 million in this year’s first half, due partly to a strike at rival United Airlines.
The new Texas Air offer would require that Gencorp retain 1.5 million of its Frontier shares so that Gencorp could continue to control the airline until the Transportation Department approves a Texas Air takeover, Texas Air spokesman Bruce Hicks said. Otherwise, he said, Texas Air might find itself owning all of an airline without government approval.
Texas Air said that, should the agency not approve the offer, it would guarantee to pay Gencorp the difference between the $20 and whatever lower price it may have to sell the shares for. Hicks added that, should Texas Air not get the required federal approval, it would sell its Frontier shares “in an orderly fashion as prescribed in the (DOT) regulations.”
Texas Air is parent of Continental Airlines and New York Air. Its attempt to acquire Frontier is the second one this year. Earlier, Frontier had rejected a similar bid by Texas Air because it said it feared potential antitrust problems.
Texas Air Chairman Francisco A. Lorenzo has wanted to get his hands on Frontier as a means of strengthening Continental’s hub at Denver. Continental operates 131 daily flights at Denver, compared to 163 for United and 116 for Frontier.