Texas Air and Eastern Seek to Assure Merger : Urge Judge to Reject Plea by Eastern Workers
Texas Air Corp. and Eastern Airlines on Tuesday urged a federal judge to ignore efforts by a group of employees to block their proposed merger, warning that Eastern could “face financial insolvency” should the deal fall through.
In a 90-page document received by the U.S. District Court on Tuesday, the airlines said public interest should be the court’s principal consideration.
“The collapse of Eastern will have ramifications on this community, the flying public and the stock market which would be disastrous,” the companies said.
“Enjoining this transaction now will leave Eastern not only in a bad position but in fact in a worse position than it faced in February, 1986,” the companies said.
Eastern has about 38,000 employees.
SEC Inquiry Sought
Rep. Claude Pepper (D-Fla.), meanwhile, has asked Securities and Exchange Commission Chairman John Shad to investigate employee allegations of improprieties in the sale of Eastern to Texas Air.
Earlier this month, Eastern Airlines Employee Coalition Acquisition Inc., which includes Eastern’s three main labor unions, sued Eastern seeking to block a Nov. 25 shareholders meeting in which the merger is expected to be approved.
The unions claim that Eastern’s board acted improperly when they accepted Houston-based Texas Air’s $676-million takeover bid nine months ago. They claim the board did not adequately entertain other bidders, including a $600-million offer by the employees.
Coalition leader Charles E. Bryan, president of the machinists union, delivered to Eastern a $10.25-a-share cash offer, one he claimed to be superior to Texas Air’s offer of $6.25 per share in cash and $3.75 per share in securities.
A hearing date on the union’s request to block the shareholders’ meeting had not been set Tuesday.
U.S. District Judge James L. King, who was assigned the case, was out of town and had no immediate response Tuesday to the latest court filing by Eastern and Texas Air.
Tax Problems
The carriers maintained that there would be “major adverse tax consequences” for Eastern and minority shareholders should the merger be delayed past Jan. 1.
“Texas Air will have no obligation to go forward with this merger. No other merger partner candidate exists. The vague, highly conditional proposal of the plaintiffs will require months of negotiation and is highly speculative,” Tuesday’s court filing said.
Eastern could face “default of its loans, will lose the conditional $500-million new commitment and will face financial insolvency” if the employee groups are allowed to block the takeover, the filing said.
Eastern has lost more than $500 million this decade.
Pepper told Shad in a letter dated Nov. 13: “It has been brought to my attention by employees of Eastern from my Congressional District . . . numerous improprieties” were committed by the Eastern board in deciding to sell to Texas Air on Feb. 24.
Eastern’s chief spokesman, Jerry Cosley, said the “entire matter has been under (the SEC’s) intense scrutiny throughout.”
Both the Department of Transportation and the Department of Justice have approved the merger.
An aide to Shad said the Pepper letter was received Monday and had been referred to the corporate finance division of the SEC. She said it is likely that a response will be ready in early December.
