Pan Am Stock Active as Rumors Point to Merger With American
Struggling Pan American World Airways, one of the airline industry’s last obvious takeover candidates, was among Wall Street’s most actively traded stocks Thursday as rumors circulated that it has reluctantly agreed to discuss a possible merger with profitable American Airlines.
Citing company policy, neither airline would comment on rumors that the two companies have held preliminary talks about a possible merger and are scheduled to meet again today. Pan American Chief Executive C. Edward Acker and Robert L. Crandall, chief executive of American’s parent company, AMR Corp., are both scheduled to make appearances at an airline industry investment forum today in Florida. But an American Airlines spokesman said he knows of no plans for the two men to meet to discuss the possibility of a merger or the sale of some Pan Am assets to American.
Rumors about a possible merger between the two airlines have been cropping up for months. Their genesis was a marketing agreement the two struck last spring to combine their frequent flier programs and to share American’s computerized reservations system.
As part of that agreement, American has first refusal on any asset sale by Pan Am. Hence, analysts speculated, if the two sides are holding talks, it could be because Pan Am wants to sell routes or airplanes to yet another airline.
The merger rumors also gained strength as American seemed to be left behind by the merger wave in the airline industry and as Pan Am emerged as one of the industry’s last takeover candidates.
“I think you can safely say that Pan Am will not be around (as an independent airline) at the end of post-deregulation,” said Anthony Hatch, an analyst with the New York investment firm of Argus Research.
Investors treated the rumors seriously Thursday, sending Pan Am stock soaring 26%, or $1.125 per share, to close as one of the New York Stock Exchange’s most active stocks at $5.50. The stock of AMR also rose on the takeover rumors--by $1 a share to close at $55.75.
But Wall Street analysts, while not dismissing the merger rumors, threw some cold water on the talk, citing labor problems and vastly different corporate strategies.
“The union problems that they would have to go through to put those two airlines together would be unbelievable,” said John V. Pincavage, an airline analyst at the New York investment firm of Paine Webber.
American has been involved in a cost-cutting drive since early 1984, intent on reducing its labor costs largely through a two-tier salary plan and, with the exception of its recently announced plan to buy AirCal, by expanding internally instead of through acquisitions. As a result, its average employee cost has fallen to about $45,807--higher than the industry average of $41,865, but considerably lower than Pan Am’s average cost of $48,471.
American, the nation’s No. 3 airline, is widely regarded by industry analysts as a leader in negotiating progressive labor contracts, while Pan Am’s labor history has been marked by turbulent dealings.
Most recently, strikes and bitter disputes have occurred at Pan Am, largely because of wage and benefit concessions the company has demanded from employees.
