UAL Stock Rises on Hopes of Higher Bid

Shares of UAL Corp. rose sharply Tuesday after a bid from a management-labor group last week and on the prospect of a higher offer from competing bidder Marvin Davis.

But analysts said Davis may find it hard to persuade unions at UAL’s United Airlines to offer the steep concessions necessary to mount a competitive bid.

UAL rose $3.75 a share to close at $290.75 in active trading on the New York Stock Exchange.

The management group, which includes Chairman Stephen M. Wolf and the pilots union, has offered $6.75 billion, or $300 a share, for Chicago-based UAL.

A source close to the situation said foreign partners have expressed interest in joining with Davis to buttress his bid, currently at $6.2 billion, or $275 a share. The Los Angeles investor has said he may be willing to raise the offer.

But it was considered unlikely that the unions would throw their backing to Davis, a relative stranger.

Analysts said support from the unions was crucial.

“Everything centers around labor. That is the issue now,” said analyst Edward Starkman of Paine Webber Inc.

Machinists Skeptical

So far the pilots have agreed to participate in the joint labor-management bid and flight attendants have said they’ll study the proposal.

But the machinists, the largest group at United with 23,000 employees, expressed skepticism.

John Peterpaul, vice president of the International Assn. of Machinists & Aerospace Workers, said in a statement that the union had not received an official invitation to join in the bid, but thought it vastly overvalued the airline.

Whether the machinists can block the bid spearheaded by the pilots and management remains to be seen.

UAL’s board said it would review the labor-management bid, disclosed last Friday, as well as any other offers.

Davis indicated in an Aug. 31 letter to the UAL board that he might top $300 a share if permitted to review non-public financial data. The investor opened the bidding for UAL last month at $240 a share, and later raised his offer.

But Davis would most likely need concessions from employees to raise his bid again, something union workers may be unwilling to consider.

Already concessions are expected to play a large part in financing the joint bid, which would give employees 75% of UAL and a group of 35 managers 10%.

Others Interested

British Airways PLC, which has a marketing agreement with United, has agreed to invest $750 million for a 15% stake.

If successful, the joint bid would make UAL the largest employee-owned company in the United States.

Several parties, some of them based overseas, have expressed interest in joining Davis’ bid, a source close to the discussions said Tuesday.

“It now appears that it is a two-horse race--there are expressions of interest from other parties,” said the source, who asked not to be identified.

The parties include foreign as well as domestic airlines and non-airline companies, the source said. Leveraged buyout funds and foreign investors have also expressed interest, according to the source, who declined to give further details.

A spokeswoman for Davis declined comment.

Even if Davis teams up with a foreign partner, his chances of winning concessions from the unions are considered small.

“I am not convinced that employees will do that (give concessions to Davis) or that a foreign carrier will step in,” said one arbitrager.

Others speculated that Japan Air Lines, Lufthansa or Air France had made overtures to Davis’ group.