USAir Rebuffs $1.6-Billion Takeover Attempt by Icahn
USAir Group on Thursday angrily rejected financier Carl C. Icahn’s $1.6-billion takeover bid as “grossly inadequate and not in the best interests of USAir Group and its shareholders, employees or passengers.”
It also accused Icahn of interfering with USAir’s proposed acquisition of Piedmont Aviation. Icahn, chairman and 73% owner of Trans World Airlines, made his $52-a-share offer Wednesday, just as Piedmont was considering the USAir takeover bid.
Should the Icahn transaction be completed, it would be nearly twice as big a deal as the present record holder: last year’s $884-million takeover of Republic Airlines by Northwest Airlines.
Thursday, USAir announced that its discussions with Piedmont, parent of Piedmont Airlines, a major East Coast regional carrier, were continuing “with the mutual objective of executing a definitive merger agreement shortly.”
Meanwhile, USAir’s proposed $400-million acquisition of Pacific Southwest Airlines was given final approval Thursday by the Department of Transportation. PSA’s shareholders are scheduled to vote on the deal March 17.
Icahn’s bid for USAir came in a letter to USAir Chairman Edwin I. Colodny. Piedmont’s board learned of the offer while it was holding a telephone meeting of directors to consider the USAir offer, which is also worth about $1.6 billion.
In his letter, Icahn made the surprise disclosure that he already owns a sizable chunk of USAir and is in fact its largest shareholder. Although he has made no filings with the Securities and Exchange Commission so far, it is reported that his holdings amount to 9.9% of the company. An investor is required to report to the SEC within 10 days after its holdings in a company become larger than 5%.
In a telephone interview Thursday, Icahn said he would file the required report “in timely fashion.”
Some analysts interviewed Thursday said they believe that Icahn does not actually intend to take over USAir Group. Instead, they said, he is seeking a counter-bid by USAir for TWA. In this way, they said, the entrepreneur would be able to unload his holdings in TWA, said to be worth about $600 million.
USAir said its board has authorized its lawyers “to explore all appropriate legal remedies against TWA’s last-minute attempt to interfere with USAir Group’s acquisition of Piedmont.” It said Icahn’s offer was “highly conditional (and) unsolicited.”
USAir said TWA’s proposal “is nothing more than an attempt by Carl Icahn to disrupt at the 11th hour USAir Group’s acquisition of Piedmont, a transaction which the USAir Group board views as most beneficial to USAir Group’s shareholders, employees and passengers, and which Mr. Icahn obviously regards as contrary to his own personal interests.”
Icahn’s offer for USAir was made while the Piedmont directors were considering competing takeover bids by USAir and Norfolk Southern. The railroad company already owns nearly 20% of Piedmont. Icahn’s letter to Colodny suggested that he might be interested in a combination of USAir, Piedmont and TWA.
Late Thursday evening, Mark Buckstein, TWA’s chief counsel, said the airline had filed suit in Delaware Chancery Court against USAir Group and its directors seeking a declaration that a “poison pill” plan put into effect some time ago by USAir’s board of directors is “invalid as applied to our merger proposal.” The suit also seeks a declaratory judgment that TWA’s merger proposal “is not in any way an interference with USAir’s attempted acquisition of Piedmont.”
A poison pill is a bylaw provision that changes a company’s financial structure once a hostile suitor acquires a large block of shares. The change is usually designed to make completion of a takeover extremely expensive or otherwise unpalatable.
Analysts interviewed generally agreed that Icahn, who has been a very successful takeover specialist and arbitrageur, would experience little difficulty in obtaining the financing to take over USAir.
“Based on the number of takeovers he has done,” said one analyst who insisted on anonymity because his company is investment banker for one of the companies involved, Icahn would likely be able to come up with the money. “He has tapped major lines of credit in recent years. He is not new at the game of borrowing.”
Some observers believe that Icahn’s extensive holdings in USX would serve as collateral for his proposed USAir deal. He had been pursuing a possible takeover of USX but at least temporarily withdrew the bid in January.
Andrew Gray III, an analyst with Pershing & Co., a New York brokerage house, feels that Icahn has a choice of alternatives.
“If he did the USAir deal,” Gray said, “he could use that as collateral for the purchase of more USX stock” or he “could use his USX stock as collateral for the airline deal. He has more than one avenue to walk down.”
Icahn owns 11.4% of USX--about 30 million shares worth about $700 million. It was incorrectly reported earlier that he had sold the shares.
TWA also has about $1 billion in its treasury that Icahn could use for a USAir purchase. And most of USAir’s planes are owned, not leased, and could be used as collateral. Of its nearly 150 planes, only 25% are leased, a low percentage by today’s standards.
“I believe there will be no trouble in financing this deal,” Icahn predicted in Thursday’s interview.
