Davis Hikes UAL Offer but Lays Out Conditions : Pressure on Board Mounts as He Boosts Bid to $275 Per Share From $240, Subject to Review of Books
Los Angeles billionaire Marvin Davis disclosed Wednesday that he is willing to boost his takeover bid for UAL to $275 a share from $240, subject to a review of the airline company’s books.
Davis also said he would seek the consent of UAL shareholders to remove all of the company’s directors, except for Chief Executive Stephen M. Wolf, only if the board freezes out consideration of his offer.
A Davis spokesman added that a review of UAL’s internal finances could result in an even higher price.
The new offer, worth close to $6 billion compared to the previous $5.2 billion, is designed to force UAL’s hand. The company, parent of United Airlines, has yet to respond formally to Davis’ initial offer made earlier this month, but has scheduled a special meeting of its board for today, presumably to discuss the Davis bid and other options.
“He is attempting to force some direct action,” said Louis Marckesano, airline analyst for Janney Montgomery Scott, a Philadelphia brokerage. He and other analysts have expected UAL to sell for at least $250 a share, and thus any higher bids would not come as a surprise.
Speculation Increasing
In New York Stock Exchange trading Wednesday, UAL stock fell $2.50 a share to close at $251.75. Davis’ new offer was made public after the market closed.
UAL officials in Chicago refused to comment on the Davis offer.
The offer comes as speculation has increased about other possible bids, including a buyout by UAL management in alliance with the airline’s pilots. Last weekend, UAL officials reportedly met with leaders of the Air Line Pilots Assn. to discuss a possible management-employee buyout or recapitalization to put a large chunk of shares into an employee stock ownership plan as a means of blocking any hostile takeover.
The leveraged buyout firms of Kohlberg Kravis Roberts & Co. and Forstmann Little & Co. also reportedly have expressed interest in acquiring UAL, while Pan Am Corp. has said it may be interested in a merger.
Urges Cooperation
UAL also is said to be considering other alternatives that would block any hostile takeover, such as bringing in a white knight, a friendly third-party investor who would buy a significant block of stock but would agree not to pursue a takeover. A similar alliance was made recently between USAir and Omaha investor Warren E. Buffett to protect that carrier from a possible hostile takeover.
A Davis spokesman said the possible higher bid, which would be subject to negotiation of a friendly takeover agreement, was prompted by further review of UAL’s financial condition. It was made Wednesday in a letter to UAL chief Wolf so it could be considered by the firm’s board at its meeting today.
“We wanted to have in front of the board our most current thinking on the price we would be willing to pay,” the Davis spokesman said. He added that the Davis group is prepared to proceed promptly with a due diligence investigation and negotiation of a definitive merger agreement.
The spokesman said Davis would move to oust UAL’s board if the airline tries to pursue so-called showstopper moves such as an employee stock ownership plan or a white knight that would freeze out any outside bids.
“If the UAL board would proceed down the path of reviewing alternatives and decide on a sale, and we had the opportunity to participate and put in our best bid, there is no reason to remove the board,” the Davis spokesman said.
The move to oust UAL’s board would be carried out through a consent solicitation. Similar to a proxy solicitation, a consent solicitation allows a shareholder to put a corporate matter before a vote of other shareholders, in lieu of a special meeting. In this case, Davis would need the consent of holders of a majority of UAL shares to oust the company’s board. Davis filed initial papers on Wednesday allowing for a consent solicitation, but a formal filing would have to be made with the Securities and Exchange Commission.
Commitment Welcomed
The move “should not be interpreted as anything hostile,” said John A. Davis, Marvin Davis’ son and a chief Davis family takeover strategist.
The consent solicitation would request that UAL stockholders remove all UAL directors except Wolf. It would also seek to elect as new directors Marvin Davis, his sons John A. Davis and Gregg J. Davis, and James E. Kneser, a Davis confidant and takeover strategist. The consent establishes a stockholder record date of Wednesday, and expires Oct. 15.
The Davis spokesman said the Los Angeles investor would welcome a commitment by UAL to sell itself to the highest bidders. Under corporate law in the state of Delaware, where UAL is incorporated, a firm offering to sell itself is obligated to accept the highest bid.
“We’re not worried about a competing bid,” the Davis spokesman said. “We know that if it is up for sale, the high bidder is going to win. That may be UAL management, KKR, Marvin Davis or Pan Am.”
A Davis spokesman said that the billionaire expects to provide details of financing his offer possibly by the end of next week.
