UAL Cast Among Takeover Sharks : Pilots’ Bid for United Airlines Leaves Parent Firm Vulnerable
UAL, corporate parent of United Airlines, finds itself uncomfortably vulnerable and unloved these days.
That’s mainly because of the attempt last week by United’s own pilots to buy the airline. Even though that bid may never get off the ground, the pilots have tossed the conglomerate that owns United into the tank with takeover sharks. The company has been “put into play,” in Wall Street parlance. It’s up for grabs, even though it doesn’t want to be.
For its part, the Chicago-based company has simply said it will study the pilots’ offer and respond at an appropriate time. It has made no secret of its disdain for the bid, however, and its desire to remain an independent company.
Since the pilots startled the airline industry on April 5 with their $4.5-billion offer for UAL’s airline subsidiary, the real worth of UAL has become abundantly clear in the investment community.
Action in UAL stock last week indicated just how strong Wall Street’s interest is in the situation. After starting the week at $59 a share, UAL closed Friday on the New York Stock Exchange at $72.125.
And many analysts believe that UAL is worth much more than its current stock price would suggest, perhaps more than $100 a share. Paul Karos, airline analyst with the New York brokerage house of L. F. Rothschild, Unterberg, Towbin, calculates that UAL’s airline alone is worth $43 a share, its Hertz car rental subsidiary $15, and the rest of the corporation $35 or more.
There is another reason for UAL’s vulnerability: The company is not believed to have much support among its shareholders. Observers say UAL stockholders may jump at the chance to help oust current management.
Analysts said some shareholders have been vocal in criticizing UAL Chairman Richard J. Ferris as arrogant, and the airline’s employees have made no secret of their concern about recent diversification actions under Ferris’ management. In fact, the latter point appears to be a principal reason the pilots sought to buy United.
UAL, which has owned its Westin Hotels subsidiary for a long time, bought Hertz from RCA two years ago and recently bought Hilton International, which operates hotels overseas. Its oft-stated strategy is to become a travel services company.
But, according to John V. Pincavage, airline analyst with the Paine Webber investment firm in New York, “there is much skepticism among investors and industry observers as to whether (that) can be done profitably. Airline employees, likewise, are skeptical and feel they have not benefited from the strategy in that it has taken capital away from the airline.”
UAL’s management is perceived as having provided inadequate return to shareholders in the past few years, according to Timothy Pettee, airline analyst with Bear, Stears & Co., a New York brokerage. “UAL has not won any friends among the shareholder base. The shareholders are as hostile as are the pilots.”
Observers say a number of things typically precede a hostile bid for any firm, and some of these already exist in the UAL situation. Of primary importance, they say, would be a “major player,” a big investor with considerable holdings in the takeover target.
In UAL’s case, that is New York real estate investor Donald Trump, who owns slightly less than 5% of UAL’s stock. He is said to be interested in acquiring some of the company’s real estate, such as Westin or Hilton International. In addition, the Pritzker family of Chicago, which owns the Hyatt chain, and Coniston Partners, a New York money management firm, reportedly have also invested in UAL stock. The intentions of those players is still unclear.
“You need a major player with some announced intentions,” Pettee said. “You need . . . some financial muscle to effect some change at the company. And, in the case of airlines, you (also) need the support of labor . . . . If there is some indication that the unions would make concessions to (cause) a change in ownership, then it starts snowballing from there.”
