AMR Corp. Said Readying Plan to Thwart Suitors : American Airlines’ Parent Reportedly Hires 2 Wall St. Firms to Develop Strategy
The parent of American Airlines, the non-Communist world’s largest and most profitable carrier, was reported Tuesday to have taken the initial steps to fend off a hostile takeover.
AMR Corp. appeared to be showing concern that it would become the target of an unwanted suitor in the continuing airline takeover frenzy. This summer, airline stocks have surged anew as NWA Inc., parent of Northwest Airlines, has been bought out for $4.05 billion and UAL Inc., parent of United Airlines, is currently under siege.
AMR stock was the third-most-active issue Tuesday on the New York Stock Exchange. A total of 3,873,400 shares changed hands, and the stock closed at $91.50, up $10.25.
Strategy Predictions
The Dallas-based airline was reported to have hired two major Wall Street investment houses, Salomon Bros. and Goldman Sachs, to develop a defensive strategy to prevent such an attempt.
Morgan Stanley airline analyst Kevin Murphy said he spoke with AMR management officials who told him that the two firms had been hired on a “defensive basis” and that the company is investigating “potential transactions to realize its asset value.” Murphy made his statement in an interview with the Dow Jones news service.
Other analysts predicted in interviews Tuesday that AMR’s strategy could range from the sale of one or more of its non-airline assets--to pay shareholders a special dividend--to paying out to stockholders some of the more than $1 billion it holds in its corporate treasury.
American Airlines spokesman Jim Brown declined to comment on the reports. “We have been told by senior management not to say anything at all,” he said.
Opinions varied widely Tuesday as to whether there is a real threat to AMR.
“The only way that American will be in play is if an investor announces that he has acquired a major position in the company and announces an intention to seek control of the firm,” said Paul Karos, airline analyst with the First Boston Corp. investment firm in New York. “Then it will be in play. Till then, this is all speculation. The real question is whether all of this (stock trading) volume means that there is an investor group accumulating the stock for takeover purposes.”
But others say that it is only a matter of time before an offer is made for AMR.
Davis Said Not to Be Interested
Based on the $120 a share paid for NWA and the $275 a share that Los Angeles billionaire Marvin Davis has offered for UAL, those observers estimated that AMR would be worth between $90 and $140 a share. A spokeswoman for Davis said Tuesday that he owns no shares of AMR and is not interested in pursuing the company.
“I would be seriously disappointed if American is not being examined,” said Edward Starkman, airline analyst with the Paine Webber financial firm in New York. “Given the way airlines are being traded and the way they are being valued (and) given the way that the NWA and UAL deals have been valued, I think AMR is smart to explore the options so that management can control its own fate rather than have someone else come in to stir the pot.”
Starkman said he believes that UAL could eventually be sold for $6 billion to $7 billion. Based on Tuesday’s closing price, AMR would be valued at more than $4.5 billion.
The analyst noted that UAL owns only half of its Apollo computer reservations system while AMR’s Sabre system is still wholly owned by AMR. Half of Sabre, which has an estimated value of about $1.5 billion, is up for sale.
Hans J. Plickert, airline analyst with the Transportation Group, an affiliate of Paine Webber, said AMR might be developing a strategy to make itself less appealing as a takeover candidate.
Ballooning for Weeks
“If a company sells some of its assets, it becomes less desirable,” he said. Plickert added that besides selling assets, AMR could borrow against some of its equipment, such as airplanes, to gain cash for payouts to shareholders. He estimated that the sale of half of Sabre alone would be worth about $25 a share.
The value of stock of all of the most highly regarded U.S. airlines has been ballooning for weeks, ever since NWA went into play. Delta Air Lines stock, for example, has climbed from $50 to about $80 in recent weeks.
“It’s been like a bowling alley,” Plickert said. “You pick up four (pins) and another topples over.”
AMERICAN AIRLINES AT A GLANCE
Employees: about 77,000
Airliners: 481 (about half owned, half leased)
Airports served: 156 worldwide
Daily flights: 2,300
Revenue Earnings Second quarter, ’89 $2.716 billion $177.9 million Six months, ’89 $5.167 billion $278.9 million Fiscal ’88 $8.824 billion $476 million Fiscal ’87 $7.198 billion $198.4 million
