Davis Says He Has $8 Billion to Buy UAL, Urges Action
Los Angeles billionaire Marvin Davis, stepping up the pressure on UAL Corp. Friday, said he has lined up $8 billion to pay for the company and gave its board six days to make a decision on his $275-a-share bid for the parent of United Airlines.
Davis said he would deliver $1 billion cash equity, some of which he expected to get from unnamed domestic and foreign partners. Davis said he arranged to borrow the remaining $7 billion from Citibank.
“With this financing information, the UAL board should now be in a position to take action on our proposal,” Davis said in a statement.
Davis’ financing package exceeds the size of his bid by $1.8 billion, indicating that he might raise his offer. In the statement, Davis said he expected to use a portion of the bank loan to refinance some of UAL’s existing debt.
UAL’s shares rose $10 Friday, closing at $278 on the New York Stock Exchange.
May Try to Unseat Board
United is the nation’s second-largest airline, behind American Airlines. It has an extensive domestic route system and valuable Pacific routes to Japan and other Asian countries. Besides Davis, Texas billionaire Robert M. Bass and a partnership that includes British Airways and the New York investment bank of Morgan Stanley are said to be interested in United. The UAL board has said it has not decided whether to sell the airline.
It was not clear Friday what action Davis might take if UAL rejects his offer. “We want to see the board either decide to sell, or solicit bids in the context of pursuing all its alternatives,” a source close to Davis said.
Davis has said he would seek the consent of shareholders to unseat UAL’s directors, except Chairman and Chief Executive Stephen M. Wolf, if the board fails to act on his offer. Davis could also launch a tender offer, as he did earlier this year during his unsuccessful pursuit of NWA Inc., the parent of Northwest Airlines. NWA was ultimately acquired by an investor group led by Los Angeles investor Alfred A. Checchi.
Airline industry analysts speculated that Davis might be joined in his bid for UAL by a foreign airline looking for greater access to the U.S. market, such as Lufthansa of West Germany or Air France. Analysts speculated that Citibank might contribute equity.
“Foreign airlines are on everyone’s list,” said a source close to Davis, who added that equity participation by Citibank was “possible but not likely.”
Ownership Stake for Employees
Analysts said Davis’ equity contribution seemed low, given the amount that he said he expects to borrow. Without a larger equity cushion, they added, the airline could suffer during an economic downturn, when travel slows. The Davis proposal “doesn’t leave much room for error,” said Robert Decker, an analyst with Duff & Phelps in Chicago.
Patricia Friend, president of United’s flight attendants’ union, said she was impressed by Davis’ proposal. “I would say $1 billion in equity is very encouraging.”
Davis has been trying to win support for his bid from United’s labor organizations. He met Friday morning with advisers to the airline’s machinists’ union and has met several times with pilots’ representatives.
In Friday’s statement, Davis said he intends to offer employees an ownership stake in United through an employee stock ownership plan. The pilots have been especially keen on forming an ESOP and have reportedly discussed the possibility of creating one as part of an employee-management buyout.
Jay Roth, a Burbank attorney representing the machinists’ union, described the meeting with Davis as “very constructive” but said it was too early to take a position on Davis’ ESOP proposal.
“The machinist perspective is (that) we are not looking for a buyer, we are not interested in a leveraged buyout, we are not interested in a restructuring.”
The spokesman for the pilots’ union could not be reached Friday. A source close to Davis said the pilots have $300 million that could be used as equity in a buyout plan.
