United Pilots Sue, Ask Allegis Stockholder Vote
United Airlines pilots sued Allegis Corp. on Tuesday to force the company to submit to a shareholder vote the pilots’ proposal to purchase the airline. The suit, filed in U.S. District Court in Chicago, is the latest step in a continuing saga in which the travel conglomerate has been fending off takeover attempts by its own pilots as well as a group of private investors.
The proposal by the pilots union, made last week, included a $4.1-billion offer in cash for Allegis. The pilots said they had lined up two British businessmen to purchase an Allegis subsidiary, Hilton International hotels, for $1 billion.
In their lawsuit, the pilots said their proposal was “clearly more favorable to Allegis shareholders” than an earlier recapitalization offer made by the company. Under the pilots’ plan, shareholders would receive at least $70 per share in cash, the suit said. The airline would be acquired by an entity that would be 80% held by an employee stock ownership plan for the benefit of airline employees; the remainder would be owned by the existing shareholders of Allegis.
In April, the pilots offered to purchase the airline from its parent, then known as UAL Inc., for $4.5 billion. In an attempt to thwart that effort, Allegis proposed last month a $3-billion corporate restructuring program. It would include a $60-per-share cash dividend but would also more than double Allegis’ debt. The pilots’ suit said Allegis management had “given no serious consideration” to the pilots’ proposal.
The suit said the pilots union, management and their financial advisers met intermittently last weekend, but it charged that the discussions “proved to be a charade.” When the talks ended Sunday, the suit said, “the management of Allegis had not engaged in any meaningful discussion of the pilots’ proposal; had not agreed to submit that proposal to Allegis’s shareholders; had not provided the pilots with any meaningful financial information; and had stonewalled all efforts to engage in give and take on the financial contours of a transaction that would maximize shareholder value.”
The court was asked to require Allegis to submit the pilots’ proposal to a vote by Allegis shareholders “simultaneously with a planned vote on the management proposal” and “to negotiate in good faith with representatives of the pilots with respect to the pilots’ proposal.”
Both the pilots and Coniston Partners, the investor group seeking to take over the company, have said they would sell off the company’s non-airline assets, including Hertz Corp., Westin Hotels and the Hilton International chain. They said they opposed Allegis’ diversification program.
“The integrated travel services strategy has been a failure,” the suit charged, “and has been injurious both to Allegis’s airline employees and to its stockholders. It has drained capital from the airline and has been a drag on the price of Allegis stock.”
Allegis stock gained $1.25 a share Tuesday on the New York Stock Exchange, closing at $90.75, just below its 52-week high. Volume totaled 1.213 million shares.
In their suit, the pilots also sought to prevent a transaction with Boeing Co. for the purchase of $2.1 billion worth of aircraft. The deal, the suit said, was “designed to further entrench incumbent management. As part of the transaction, Boeing purchased $700 million of notes from Allegis with an option to convert them to a new series of preferred. If Boeing exercised its option, it would put about 15% of Allegis stock into Boeing’s hands.
“Thus . . . a vendor has obtained the coveted business of United Airlines not by offering the best possible price . . . but instead by offering benefits to the management of Allegis--protection against a hostile takeover.”
Allegis declined to comment on the suit. Separately, its directors held a lengthy special board meeting Tuesday in New York.
