Texas Air and People Express have announced that Texas Air will pay considerably less to shareholders of People Express for the financially ailing carrier than was agreed on in September.
Texas Air, a holding company that also owns Continental Airlines and New York Air and is in the process of acquiring Eastern Airlines, had agreed to acquire People Express to stave off its bankruptcy. Then, it said late last week that, "as a result of worsened financial results of People Express," it would seek a lower price for the troubled low-fare, no-frills airline.
After lengthy negotiations during the weekend, Texas Air said the two companies had agreed to the reduced price "as the result of worse-than-anticipated financial results of People Express."
Texas Air also said that concessions will be sought from preferred shareholders and debt holders and from the owners of Newark Airport, where People Express has signed a long-term lease for a new terminal into which it was to have moved next summer.
Under the revised terms of the merger agreement, each common share of People Express will be exchanged for 0.05042 share of Texas Air common stock (instead of the originally agreed on 0.07563 of a share) and $2.50 worth of a new issue of Texas Air's redeemable junior preferred stock with terms similar to those previously agreed upon. But the stock will have an annual dividend rate of 8.5% instead of the 10.75% that was originally announced.
Texas Air stock closed at $38.375 a share Monday, up 25 cents. Thus, if the deal were consummated now, each People Express share would fetch $1.935 worth of Texas Air stock plus $2.50 worth of the new preferred stock, for a total of $4.435. People Express has 26.2 million common shares outstanding, which would make the deal worth $116.2 million at Monday's closing, about $24 million less than the original offer. It will vary daily, depending on the Texas Air share price, until the deal is closed.
Earlier, Texas Air completed its purchase of Frontier Airlines, a subsidiary of People Express, for $158 million. People Express acquired Frontier last year and, after months of losses, filed for bankruptcy this year.
Texas Air said that preliminary results for the third quarter of 1986 indicate that People Express suffered a consolidated net loss of about $110 million, including a provision of $55 million for loss on its investment in Frontier. This would result in a consolidated net loss of about $243 million. for the nine months that ended Sept. 30. The announcement said People Express "expects to report continuing substantial losses in the fourth quarter."
Another condition that Texas Air has put on completion of the deal is that it obtain financial concessions from the holders of its 150-million Swiss franc convertible debt issue.
Texas Air agreed to provide up to $40 million of secured loans to People Express Airlines before consummation of the merger. The amount includes $10 million that will be advanced on completion of the paper work for the transaction. An additional $15 million will be advanced when and if People Express gets approval from its debt holders and if the Port Authority of New York and New Jersey, the owner of Newark Airport, approves amendments to the terminal lease.
Texas Air has already advanced People Express $40 million and has taken over six People Express planes.