‘Poison Pill’ Adopted by Eastern Air : Board’s Action Seen as Bid to Discourage Takeover by Unions
Eastern Airlines, in what appears to be an effort to discourage its unions from a takeover attempt, on Friday adopted “poison pill” measures that it said would “protect shareholders in the event of a proposed takeover and guard against partial tender offers.”
Poison pills take many forms but have one goal--to make it prohibitively expensive for anyone attempting a takeover of a company to acquire a large enough holding of the company’s stock. As a result of Friday’s action by the Eastern board of directors, anyone attempting to take over the company would be forced to negotiate with its present management.
Such poison pills can keep an unsatisfactory management in place, some observers say. “You hate to see a management entrench itself no matter what its performance,” said Louis Marckesano, airline analyst with the Philadelphia-based brokerage of Janney Montgomery Scott.
Eastern’s unions already own more than 20% of the carrier, and Charles Bryan, head of the airline’s local of the International Assn. of Machinists, has called on his members to buy more stock.
Borman Comments
Frank Borman, chairman and chief executive of the financially ailing airline, said the measures approved Friday were similar to those recently adopted by USAir and other major companies. They “do not prevent a takeover or proxy contest but strongly encourage anyone seeking to acquire Eastern to negotiate with the board prior to attempting a takeover,” he said. He added that the board’s action should assure all shareholders a “fair price” if a takeover does occur.
“The measures are intended to enable all Eastern shareholders to realize the long-term value of their investment and are not intended to prohibit individual Eastern shareholders, including individual Eastern employees, from acquiring and voting any Eastern securities,” he said.
John Pincavage, airline analyst with the brokerage firm of Paine Webber, said: “Maybe they really are concerned about the unions. I don’t know what else would trigger such a move. In fact, I can’t see how anyone else would want to buy Eastern, given its financial and labor difficulties.’
But Eastern spokesman Jerry Cosley predicted that the airline will soon pull out of its financial difficulties and could become an attractive takeover target.
Not Ruled Out
Eastern’s board acted, he said, because of what he termed “the industry environment, takeovers, mergers, the TWA situation and the recent takeover of Republic Airlines by Northwest Airlines.”
Cosley did not rule out the possibility that the board action was an attempt to thwart union efforts, but said, “The unions have not communicated to us their intentions, and they have not filed anything with the Securities and Exchange Commission.”
However, United Press International quoted a union official as saying that the machinists’ union was putting final touches on a filing with the SEC that will outline possible strategies for a union takeover of the airline. The documents will be filed in the next few days, the official was quoted as saying.
Essentially, the poison pill measures would allow the shareholders, in the event of a takeover attempt, to purchase more shares at a greatly discounted price, diluting the holdings of the company attempting the takeover.
Eastern’s bankers have given it a deadline of Feb. 28 to obtain money-saving agreements with its three unions. If the efforts fail, the lenders may move against the airline, whose debts total $2.5 billion.
