Trump Bid to Mean Big Changes at AMR
Whether or not billionaire Donald J. Trump succeeds in taking over the parent of American Airlines, it seems clear that the company will be forced into major changes.
With his $120-a-share offer for AMR Corp. on Thursday, Trump has put the airline company into play and has whetted the shareholders’ appetite for profits. They must be appeased in some fashion, industry analysts said Friday.
As a result, said most of the analysts interviewed, American will have to seriously consider some kind of restructuring--possibly a management buyout, the sale of valuable assets or an employee stock ownership plan--to raise cash for shareholders. Its only other salvation would be government intervention.
“It is going to be very difficult, with a fair bid on the table, for management to walk away without doing something for the shareholders,” said Barry Gordon, an executive with National Aviation Technology Corp., a mutual fund.
The holders of AMR’s 59 million shares have not had a cash dividend in nearly a decade and are characterized as restless. They know that the company is worth more than the amount its stock is selling for. AMR stock closed at $103.75 a share on Friday on the New York Stock Exchange, up $3.875.
“I would guess that AMR would have to come back with a counteroffer either matching Trump’s price or topping it,” said Raymond E. Neidl, airline analyst with Dillon, Read & Co., a New York brokerage. “It would have to borrow money to achieve this. Regardless of the outcome, AMR’s debt would increase sharply. You are talking about $7 billion to $8 billion in equity. No one has that kind of money.”
AMR was not talking Friday. It has said nothing about when its board will consider Trump’s offer since it tersely announced Thursday that the board would discuss it “in due course.”
But analysts said Friday that unless Congress or the Transportation Department stops the attempted buyout, AMR must find a way to make some kind of special payout to its stockholders.
“The only way the company might be able to stay in its same form,” said Paul Karos, airline analyst with First Boston Co. investment firm, “is if Washington stops this kind of leveraged buyout before this one could go through.”
Others agreed. AMR Chairman and President Robert L. Crandall “has enormous political clout,” said one analyst who did not want to be identified because his company is involved in the proposed transaction. “He also has excellent credibility with labor.”
Crandall’s political influence might already have had some results. On Thursday, just hours after Trump’s offer was made public, Sen. Lloyd M. Bentsen, a Democrat from Texas, where AMR is headquartered, had an amendment made to a pending bill strengthening the authority of the Transportation Department to stop airline takeovers. The amendment would have the effect of including Trump’s $7-billion-plus offer for AMR retroactively.
Rep. Peter A. DeFazio (D-Ore.), author of another bill that would require approval by the Transportation Department of all airline buyouts, warned that such transactions require massive borrowing and that such borrowing would affect airline safety.
“An airline with excessive debt load may sell important assets, alienate employees and dismantle the carrier in order to meet debt payments,” he said. “The Congress cannot sit idly by while our airlines become a battleground for the corporate warlords and their armies of lawyers and financiers. Our airlines must be safe.”
Industry observers said Friday that American could raise money to pay a special dividend to stockholders by selling off a piece of its profitable Sabre computerized reservation system, which has been valued at between $1.5 billion and $2 billion. And if American, which has relatively little debt, decides to borrow money, it could pay shareholders a bigger dividend.
Heavily Leveraged Industry
Other possible defensive maneuvers, Karos said, could include taking a friendly ownership partner--either foreign or domestic--or selling or leasing some of its airliners and using the cash to pay shareholders.
AMR is expected to put up quite a struggle to fend off Trump. “AMR’s management, we believe, wants to remain independent to take advantage of the opportunities afforded a healthy airline in an increasingly leveraged industry,” said Michael W. Derchin, airline analyst with Drexel Burnham Lambert.
