Pilots Union Offers to Buy United in $4.06-Billion Deal

United Airlines’ pilots union offered Wednesday to buy the airline and its parent company for $110 a share cash in a deal that would be worth $4.06 billion.

The offer, which is contingent on the union’s success in winning a lawsuit it filed against the company last week, was contained in a letter from William R. Howard, chairman of Airline Acquisition Corp., to Stephen M. Wolf, chairman, president and chief executive of Chicago-based Allegis. Airline Acquisition Corp. was formed by the United Airlines Pilots Master Executive Council of the Air Line Pilots Assn. for the purpose of buying United.

The offer came only a day after Wolf said he would welcome an offer from the pilots provided they had the wherewithal. “If they bring the cash in a big black satchel, we’ll count it out together. If it works for the shareholders and employees, I’ll talk to the board, recommend they accept the offer, turn over the keys and walk away,” Wolf told a group of journalists in St. Paul, Minn., on Tuesday.

The pilots have been trying for more than a year to put together an offer to buy the airline. At the time of their first proposal on April 5, 1987, the parent company was a travel conglomerate, owning two hotel chains and a car rental firm as well as United Airlines. The union said its proposal was aimed at reemphasizing the importance of the airline.

Now, however, Allegis has sold off its non-airline subsidiaries and even plans to change its name back to UAL Inc. from Allegis, a name it adopted only last year. The renaming is expected to take place at the company’s annual meeting May 26.

But despite the restructuring, the pilots still want to buy the company.

Late Wednesday, Wolf issued a statement saying: “We will have no comment on the pilots’ proposal until we have had a chance to analyze it in detail.”

In his letter, Howard, a former head of Piedmont Airlines, said that if the deal goes through “stockholders of Allegis would receive $110 in cash for each of their shares and the pilots and other participating employees of Allegis would acquire, through one or more employee stock ownership plan, 100% of the common equity of the corporation. . . .”

Limit on Participation

But an agreement the airline negotiated last fall with the machinists union may stand in the way of any deal. The pilots union filed suit against United and Allegis in U.S. District Court in Chicago on April 25, seeking to invalidate two “protective covenants” that are part of the agreement.

According to the suit, the covenants limit the participation of pilots and flight attendants in an employee stock ownership plan to terms set by United and the machinists.

There also was some doubt that the pilots had offered enough. Allegis stock closed Wednesday on the New York Stock Exchange at $90 a share, up $5.25, and Gus Oliver, a partner in Coniston Partners, one of the largest single owners of Allegis stock, said: “I think that the premium (offered by the pilots) may not be high enough.”

Coniston owns about 1.8 million shares, or about 8.5% of the company.

“The offer is as irresponsible as heck,” said one airline analyst who declined to be identified by name. “It is not even a bid. It is a bid if they win a lawsuit.”

Funding Available

He added that the necessary borrowing “against a company that is already one of the most leveraged in the industry is not responsible. . . . It does not make a lot of sense.”

Howard, in his letter, said the proposal is “financeable” and that the necessary funds would be provided through a term loan of up to $3.1 billion and a letter of credit of up to $600 million. The money, he said, would come from a syndicate of banks headed by Chemical Bank, from the sale of $600 million worth of subordinated notes of the surviving corporation and from the sale of the pilots’ pension plan and of preferred stock in the surviving company.

Airline Acquisition, Howard said, had received “highly confident” letters in respect to the financing from Chemical Bank and the investment banking firm of Salomon Bros.