Group Seeks Control of Allegis; Would Split Firm, Sell Pieces
A New York-based investor group said Tuesday that it has acquired 13% of Allegis Corp., the parent company of United Airlines, and that it will try to win voting control of the travel conglomerate with the goal of cutting it up and selling the pieces.
Allegis, which changed its name from UAL Inc. last month, also owns Westin Hotels, Hilton International Hotels and Hertz Corp.
The investor group, Coniston Partners, said in filings with the Securities and Exchange Commission that the company’s assets “significantly” exceed the market price of the stock and that “substantial potential for increasing stockholder value exists. . . . The stockholders believe that the three principal businesses of the company . . . would be stronger and significantly more valuable as independent companies.”
To achieve its goal, the investment group established an entity called Allegis Investors Group.
A member of the group, Augustus K. Oliver, said in an interview Tuesday that it will seek the support of more than 50% of Allegis shareholders, the proportion required for control under the securities laws of Delaware, where Allegis is incorporated. Such approval--in the form of “consents,” or votes--would give the group the ability to oust the current board of directors.
Normally in a proxy fight, votes are solicited to elect a new board at a company’s next annual meeting. But under Delaware law, consents can be collected and action can be taken between annual meetings, Oliver said. To collect votes from shareholders, the investor group has retained the Carter Organization, a proxy solicitation firm.
Coniston Partners also announced Tuesday that it has filed suit to challenge Allegis’ sale of $700 million in notes to Boeing Co., the airplane manufacturer. Under the agreement, Boeing would gain control of 16% of Allegis common stock. The lawsuit, filed in Delaware, said the arrangement was designed to entrench Allegis’ management and defeat any attempt by shareholders to change the direction of the company.
Earlier this month, United Airlines placed a $2.1-billion order for airliners with Boeing under terms of which Boeing provided Allegis with $700 million in financing in return for the notes, which are convertible to Allegis common stock.
The investment group, which said it paid about $520 million for its 7.7 million shares of Allegis at an average cost of $67.50 per share, said if it gains control of Allegis it plans to remove 13 of the company’s 16 current directors, including Chairman Richard J. Ferris and other top officers.
It would then reduce the size of the board to nine and elect six of its own nominees. Three current non-management directors would be retained if they wanted to stay, Oliver said, to “maintain continuity.”
Chicago-based Allegis declined to comment on the development Tuesday. However, it did issue a statement on behalf of the three directors that Coniston Partners said would be retained: former Consolidated Edison Chairman Charles F. Luce, former Federal Reserve Board Gov. Andrew F. Brimmer and former astronaut Neil A. Armstrong.
The three directors said they had not been consulted by the Coniston group but added: “If we had been consulted, we would have declined to have been put forward as members of such a board. We are squarely behind the present Allegis management and board.”
Allegis has been the subject of takeover speculation for more than two months since United’s pilots offered $4.5 billion to buy the airline. Allegis rejected the pilots’ bid, but the corporation has been considered vulnerable to some kind of takeover attempt ever since--having been “put into play,” in Wall Street parlance.
Many shareholders, including the pilots group, have voiced their disapproval of the company’s diversification program. It has owned Westin for years but bought Hertz from RCA two years ago and only recently acquired Hilton International.
Analysts interviewed Tuesday said they believe that if Coniston Partners is not successful, someone else will eventually take over Allegis. But they added that Coniston might, indeed, succeed in its attempt. About 80% of Allegis stock is owned by large institutions that are said to be unhappy with the way the company is being run. All told, the company has about 20,000 shareholders.
“My guess is that if there is a management thrown out by investors, it is going to be this one,” said airline analyst David Sylvester of the San Francisco-based brokerage Montgomery Securities. “Our (institutional) clients, the people who own the stock, almost universally disparage current management.”
But Scott Drysdale, airline analyst with the Seattle office of the San Francisco brokerage house of Birr, Wilson & Co., said getting proxies from small, individual stockholders will not be easy. “It is just like a political race,” he said. “You have to convince a lot of people, and they don’t really care.”
However, Coniston’s Oliver said the fact that so many shares are in institutional hands will make it “a little easier to explain what we intend to do.”
No Connection
He said his group has no present intention of retaining any portion of Allegis but is keeping its options open. He said Allegis Investment Group has no connection with UAL’s pilots, although the pilots would be given the opportunity to bid for United Airlines if the investment group is sucessful.
John V. Pincavage, airline analyst with the New York brokerage house of Paine Webber, said a successful proxy takeover of Allegis would not be achieved overnight.
“Between now and the time these guys take over Allegis, if they do, there is going to be a lot of time spent in court,” he said. “And, besides, who knows what other bids may or may not emerge. Just because these (Coniston Partners) are pushing the issue does not mean they are going to get it.”
Oliver said his group began buying Allegis stock March 31 on the open market and had all of the shares it now owns by May 13. To keep the transactions secret, they were done under the names of shell companies, including LA Partners and LA International. The names, it was learned, were the first two letters of UAL spelled backwards.
Five Years Old
Coniston Partners describes itself as “an investment partnership that specializes in strategic block investing for a limited number of individual and institutional investors.” It was formed in 1982, with $3 million in capital, by Keith R. Gollust and Paul E. Tierney Jr., who had left the New York investment firms of White, Weld & Co. and Merrill Lynch, Pierce, Fenner & Smith, respectively.
They have held major positions in the last two years with Storer Communications, Viacom International, NL Industries and Gelco Corp.
Apparently as a result of the announcement, Allegis was the most active New York Stock Exchange issue Tuesday, with 2,436,400 shares changing hands. It closed at $75.25, up $5.
