AMR Stock Dives on Fears Law May Change
Stockholders, worried that Congress might thwart an attempt by financier Donald J. Trump to buy the parent of American Airlines, sold their AMR Corp. shares in large numbers Wednesday, sending the stock plummeting $4.25 a share to $97.13.
The stock was the fifth-most-active issue on the New York Stock Exchange, with more than 2.6 million shares trading hands. On Tuesday, it had fallen $3.38 a share and was second most active on volume of 1.7 million shares.
Trump last week bid $120 a share for the 59 million outstanding shares of AMR. If the deal is consummated, it would involve the largest amount ever paid for an airline, more than $7 billion. Officials at AMR’s headquarters in Dallas would not comment Wednesday on the Trump bid or on the drop in the stock price.
Trump has not disclosed how he would finance the acquisition, but critics have denounced such deals as threats to airline safety and financial stability because of the large amounts of debt assumed by the airline companies being bought.
“The focus has shifted to Congress,” said Thomas C. Longman, airline analyst with Bear, Stearns & Co., a New York investment firm. “Investors are nervous that not only future deals will be affected by legislation but that this American (Airlines) deal will be involved retroactively as well.”
And the nervousness was not unfounded. A Senate committee has already approved a bill giving the Transportation Department authority to review airline takeovers, and similar legislation was introduced in the House on Wednesday. The House bill, sponsored by leaders of the Public Works and Transportation Committee, would strengthen the department’s authority to review and take corrective action on leveraged buyouts.
It would give the department a 30-day period in which to review any acquisition of 15% or more of the voting stock of a major air carrier, and the waiting period could be extended by 20 days.
The bill would allow the Transportation Department to reject a buyout if, among other things, it would weaken the carrier financially, causing a deterioration of its performance with regard to safety, or requiring the sale of assets, or weakening the carrier’s ability to compete.
“These leveraged buyouts are motivated plain and simply by greed,” said Rep. Peter A. DeFazio (D-Ore.) as the legislation was introduced. “They are symptoms of a new disease on Wall Street: capital vampirism, sucking the lifeblood, planes, equipment, employees out of the U.S. airline industry for some Wall Street raider’s short-term gain. The flying public is not protected.”
Longman, the analyst, said other factors were also involved in the decline of AMR’s stock. He said large institutional investors were selling their shares, taking the profits they have accumulated in the last few months since the stock was in the $50 range. Earlier this week, the Vanguard Windsor Fund, which had more than 3 million shares of AMR earlier this year, sold its holdings.
Longman also said investors are taking a “wait-and-see” attitude until they learn whether Trump is able to get financing for the AMR deal. The billionaire hotel magnate said when he made his $120-a-share offer that he would be able to obtain the financing in a reasonable time.
Timothy Pettee, airline analyst with the Merrill Lynch investment firm in New York, said “market jitters” had also contributed to the AMR decline. Another factor, he said, was that airline profits might be off in the final quarter of the year and that this will “weigh heavily on AMR.”
Three of Trump’s key executives in his Atlantic City, N.J., casino operations were killed Tuesday in a helicopter crash, and Pettee said the tragedy might also have contributed to the slide in the AMR stock price.
“The fear is that he will be spending his time and efforts on replacing these men, Pettee said, “and will thus work slowly on the AMR takeover attempt.”
