REBOUND ON WALL STREET : No Deal : Trump Cites Drop in Airline Stocks, Cancels AMR Offer
Donald J. Trump on Monday withdrew his $7.5-billion offer for AMR Corp., the parent of American Airlines, indicating that the crash in airline stock values triggered by Friday’s collapse of the proposed buyout of UAL Inc. had caused him to back away from the deal.
The abandonment by the billionaire hotel and gambling magnate of his $120-a-share offer for AMR came only 11 days after he made it. It would have been the most costly airline takeover in history.
“In light of the recent change in market conditions and the huge drop in the value of the AMR Corp. stock,” he said in a two-paragraph letter to Robert L. Crandall, AMR’s chairman and president, “please let this letter represent a withdrawal of my offer to acquire AMR for $120 per share in cash.”
He said, however, that he might make a new offer later. “I am currently reviewing all my options with respect to AMR, including making another offer at a lower price, increasing my existing position in AMR, selling my AMR stock or taking any other actions that I deem appropriate. I intend to closely monitor developments.”
Trump never disclosed how much of AMR’s stock he had accumulated or how much he paid for it. All that is known is that the total was less than 5% since he did not file the form 13-D that the Securities and Exchange Commission requires on investments of that size or larger.
AMR continued to maintain its silence regarding Trump and his offer, except to announce that the letter had been received. Its board, which had promised to consider the offer “in due course,” had not yet taken it up.
AMR was the fourth most-active issue traded Monday on the New York Stock Exchange, with volume of 4,749,800 shares. It closed at $76.50, off $22.125.
Trading in AMR stock was halted Friday when it stood at $98. When it reopened Monday at 10:17 a.m., it was off $18. After the Trump withdrawal, trading in AMR was halted again when it stood at $83. When it reopened after a 49-minute hiatus, it was at $77.
The steep decline in AMR and UAL stock Monday--about 20% for UAL and 22% for AMR--caused airline stocks to dip by a larger amount than any of the other Dow Jones industry groups, even though other airline issues were mixed.
Many analysts said Trump was never really serious about taking over the company that owns the nation’s largest air carrier.
“Most serious investors would have used the decline as an opportunity to buy more shares rather than to back out,” said Timothy Pettee, airline analyst with the Merrill Lynch, Pierce, Fenner & Smith investment firm in New York. “If (Trump’s) real intentions had been to take over the company, he could have used this opportunity to buy on weakness, which most acquisitors would have done. Since he did not buy more and withdrew his offer, it suggests that he is selling his position.”
Kevin Murphy, airline analyst with Morgan Stanley & Co., another New York-based stock brokerage, agreed that Trump never really intended to consummate the deal. “This does not surprise me,” he said. “Trump wanted the publicity, and then he wanted to find a way to get out. He was not a true investor. He has never shown that he is a real contender in the takeover world.”
But Murphy said Trump’s offer will continue to reverberate in the investment world and in the airline industry. As a result of the offer, he said, AMR will be forced to restructure. Despite the drop in airline stocks, he noted, its assets are still worth between $120 and $140 per share.
Hans J. Plickert, airline analyst with the Transportation Group, an affiliate of Paine Webber Inc., said: “Possibly the difficulty in finding the financing for the UAL situation gave him cause to reconsider.”
One veteran airline observer speculated that the Trump offer might really have been an effort by the financier to sell his Trump Shuttle to American. “He was not doing well with it, and he needs the money,” the observer said. Trump bought the shuttle, which flies in the Northeast air corridor, from bankrupt Eastern Airlines in June.
A bill now before the House Public Works and Transportation Committee’s aviation subcommittee would greatly strengthen the Department of Transportation’s authority to review and take corrective action on leveraged buyouts. AMR was believed to have been lobbying heavily to have the proposed Trump deal included retroactively in any such legislation.
In addition to his letter to Crandall, Trump also wrote a letter Monday to Rep. James L. Oberstar (D-Minn.), chairman of the subcommittee, in which he said the “perception that legislation in this area may be hastily approved contributed to the collapse of the UAL transaction and the resulting disruption in the financial markets experienced this past Friday. The confidence of both lending sources and the investing public can only be further shaken by a continuation of these efforts.”
Rep. Peter A. DeFazio (D-Ore.), a member of the subcommittee, said in an interview: “I guess we showed that the emperor had no clothes. It was an unrealistic offer to begin with, for whatever reason we will never know. But now he is using the Congress as a scapegoat and the slide of airline stocks as an excuse. If it was a good deal at $120, it ought to remain a good deal now.”
