Dark-Horse Offer : Frontier Tells Why It Chose People Express
A better money offer, labor harmony and Texas Air Corp.’s impending tender deadline prompted Frontier Airlines to accept the dark-horse buy-out offer from People Express, Frontier President Joseph R. O’Gorman said Wednesday.
Texas Air President “Frank Lorenzo’s tender was going to start today. . . . Presumably he could go ahead and buy 51% of Frontier stock,” O’Gorman told a news conference.
“The way the situation developed . . . the board was in a position where it had to make a decision yesterday. The two offers were on the table. . . . The decision was made, and we decided to go with People,” O’Gorman explained.
Later Wednesday, Texas Air announced that it had terminated its tender offer for Frontier stock and instructed its depository to return all tendered Frontier shares to tendering stockholders.
Texas Air, owner of Continental Airlines, which is Frontier’s archrival at Denver, had been the lead player the past week or two in the buy-out attempt, with an initial offer of $20 per share. Texas Air then upped the ante Tuesday morning to $22 per share for Frontier’s 12.5 million outstanding shares. People Express entered its offer of $24 per share at Frontier’s board meeting Monday.
Both airlines’ offers eclipsed the $17-per-share offer made much earlier by a coalition of Frontier employees.
“Labor harmony and price” were the deciding factors in going with People Express, O’Gorman said.
“When you took a look at all the factors on the table, the decision was very easy,” O’Gorman said, adding that Frontier’s union coalition also had taken part in the People Express talks that began last week.
“The employees were involved early on--from the second day of the talks,” O’Gorman said.
People Express “guaranteed we will run a separate entity for five years, and there will be no furloughs” of Frontier’s 4,600 employees, O’Gorman said of the agreement. “It was our best option. It will be an excellent fit,” he said of the takeover.
Frontier employees were dead set against a Lorenzo buy-out in the wake of his union busting after taking over Continental Airlines.
“We had conversations with several other carriers. . . . It’s fair to say there were rumors on the street that someone else was talking to us. Mr. Lorenzo upped the offer, but as it turned out, he didn’t up it enough,” O’Gorman said.
O’Gorman said that, despite time needed for filings with the Securities and Exchange Commission, shareholders approval, approval by the Department of Transportation and ratification by Frontier’s four labor unions, he hoped the acquisition could be completed by the end of November and no later than January.
Asked if the no-frills, discount style of People Express would be imposed on Frontier, O’Gorman said he expected no major changes in the near future for either airline’s style of service.
“I think we’ll start out with two different kinds of companies. Over a time, I think you will see some blending,” he added.
O’Gorman also talked of People Express establishing a “second hub” at Denver’s Stapleton International Airport, broadening its discount service from its East Coast base in Newark, N.J.
But he didn’t see People Express’s entry into the Denver market as “erupting into a price war.”
People Express earned $1.65 million in 1984, an 85% decrease from the previous year, which management said was due to its rapid expansion.
Frontier reported losses of $13.7 million in 1983 and $31.1 million last year. For the first six months of 1985, Frontier is reporting a profit of $20.6 million, due in part to selling half of its fleet of jets and leasing some of them back.
C FRONTIER AIRLINES
