Pan Am Spurns $475-Million Kerkorian Offer
Struggling Pan Am Corp. rejected Thursday a $475-million proposal by Los Angeles financier Kirk Kerkorian for acquiring control of Pan American World Airways, calling it too conditional to be “a real offer” and “little more than an option.” The explanation was quickly criticized by Kerkorian spokesman Terry Christensen, who said there were “no conditions that are not normal for a transaction of this size.”
A coalition of four of Pan Am’s five major unions chimed in with a warning about the company’s financial situation and said Pan Am should reconsider the proposal or find an alternative “while there is still time to save Pan Am.”
Pan Am’s rejection came after several months of intensive work by a special Kerkorian task force from MGM Grand Inc., which he controls. The unions approached the financier after Sir James Goldsmith, the Anglo-French financier, decided against an investment in Pan Am. The company later gave MGM Grand Inc.--parent firm of MGM Grand Air, a small all-first-class airline--a green light to work on a proposal.
Disclosing details for the first time, Christensen said Thursday that the offer included $75 million “cash on the barrel head,” with another $400 million in financing to be raised. MGM Grand Inc. would have ended up with “less than 50%” ownership of Pan American World Airways, which was to be spun off from the parent firm after assuming more than $1 billion of its debt, he said.
Another 20% of the airline’s stock would have gone to the unions, which had agreed to make wage and benefits concessions valued at about $200 million a year if the Kerkorian offer had been accepted. “This was very close to the form of transaction suggested by the Pan Am management,” Christensen said, adding that of the various investors looking at the company only Kerkorian had made a written offer.
“We’ve offered the real money, we’ve done the real work and they say our proposal is not real,” he added.
In the announcement, Pan Am said its executive committee, acting on behalf of the board, “reviewed and rejected a heavily conditioned proposal” from MGM Grand.
C. Edward Acker, chairman and chief executive, said that after carefully examining the proposal and consulting investment banker Citicorp, the committee concluded that the proposal was “too highly conditional in many important respects--with no assurance from MGM that the conditions can be satisfied--to be considered a real offer, and amounts to little more than an option to buy our airline business.”
Later, Pan Am spokesperson Pamela Hanlon said the conditions included, but were not limited to, the ability of MGM Grand to raise the debt financing and obtain the labor concessions.
Christensen, who is president of Kerkorian’s personal holding company, Tracinda Corp., said the proposal expires at 5 p.m. today. “Beyond that,” he said, “we don’t have any plans.”
Margaret Brennan, who heads the Pan Am union coalition, put out a statement saying: “In rejecting Mr. Kerkorian’s proposal, the board of directors has turned its back on nearly $500 million in new capital and more than $200 million in labor savings at a time when the company is expected to lose as much as $100 million this year and is predicted to lose over $250 million next year. Obviously, Pan Am cannot sustain such losses and remain in business.”
The statement said the unions remain “willing to make significant concessions, but it is increasingly apparent that concessions alone are not sufficient.”
Pan Am made no immediate response to the remarks by Christensen and the unions.
