Allegis Wants to Cut Huge Payout, Top Holder Says

From Times Wire Services

Allegis Corp.'s largest stockholder says the company’s new management wants to renege on a promised $3-billion payout to shareholders, but some experts said Wednesday that they believe that Allegis will fulfill its pledge.

Coniston Partners, a New York investment firm with a 14% stake in the Chicago-based parent of United Airlines, threatened in a letter to Allegis’ board to renew a proxy battle for control of the company if the directors reduce the size of the previously announced payout.

The letter, sent Tuesday, charged that Allegis Chairman Stephen Wolf plans to recommend at a board meeting today in Seattle that Allegis declare a cash dividend to shareholders of $25 to $30 a share.

Such a declaration would conflict with the company’s previously announced restructuring plan calling for the distribution to shareholders of the full proceeds from Allegis’ sales of its Hilton International and Westin hotel chains and its Hertz car-rental subsidiary, estimated to total $3 billion, or $53 a share, Coniston principal Paul E. Tierney Jr. said in the letter.


“To cut back in the stated goal would be incomprehensible and totally undermine the board’s credibility,” Tierney wrote.

Allegis said in October, before Wolf came on board, that the payout would be at least $50 a share. Analysts speculated on Wednesday that Wolf would instead prefer to put some of the revenue from the company’s restructuring into United.

Tax Aspect Cited

Allegis has been selling off its non-airline businesses to concentrate on United, its main subsidiary and the nation’s largest carrier after Texas Air Corp.


Tierney said Wolf told him he would recommend the reduced payout be distributed in the form of a dividend rather than a self-tender offer. Such a move would be “a slap in the face” to the majority of stockholders for whom a dividend payment would be fully taxable, whereas a self-tender payment would not, Tierney wrote.

Allegis spokesman Matt Gonring acknowledged receipt of Tierney’s letter, but would not comment on the company’s plans.