UAL Employee Groups Call for Chief, Board to Quit
In what was viewed as an effort to torpedo the takeover of UAL Corp., two United Airlines employee groups Tuesday demanded the resignation of United’s top officers, including Chief Executive Stephen M. Wolf.
The demand came as Wolf and his advisers tried to revise a failed $6.75-billion offer for the airline from United’s top managers and its pilots. The initial $300-a-share offer collapsed last Friday after nervous lenders rejected the deal as too risky.
Calling Wolf’s actions “greedy and irresponsible,” John F. Peterpaul, general vice president of the International Assn. of Machinists, called for Wolf to step down, along with UAL’s board. Peterpaul also asked that the Securities and Exchange Commission look into events surrounding the proposed takeover.
Later, in an interview, Peterpaul reiterated his union’s position that the takeover would place too much debt on United and serve to enrich the airline’s top executives. Wolf stands to make almost $76 million from his stock and options in a $300-a-share buyout. “The whole program is bad,” Peterpaul said.
Separately, a group that claims to represent United’s 40,000 non-union employees called upon Wolf to quit. William Palmer, an organizer of a group called Coalition Acting for the Rights of Employees, or CARE, said the proposed buyout would have forced a 10% wage cut on non-union employees.
Palmer said he hoped CARE’s action would discourage lenders from financing a UAL takeover. “Any banker that doesn’t consider the negative attitudes of employees would be derelict in his duty,” he said in an interview. Palmer and Peterpaul said the similar actions by their groups Tuesday was coincidental.
United’s machinists and nonunion workers are at odds with the airline’s pilots, who have joined Wolf in an effort to buy the airline, with help from British Airways. The proposal would have given an 85% ownership stake to United’s employees and managers and a 15% stake to British Air.
The leaders of United’s pilots union met with their advisers Tuesday outside Chicago in an attempt to devise a new buyout proposal. The meeting is expected to last until Friday.
UAL released a statement from Wolf on Tuesday, calling Peterpaul’s comments “divisive and uncalled for.” He said a resignation of UAL’s board would not be in the company’s best interest.
On Wall Street, professional stock speculators said Peterpaul’s remarks also seemed designed to help his union gain leverage in contract talks with the company, which opened Tuesday. “I think he’s just trying to make Wolf angry and scare the U.S. and Japanese banks,” one trader said. “But I don’t take him too seriously.”
One executive with a large foreign bank said Tuesday that Peterpaul’s remarks were of concern to overseas lenders. “There is too much uncertainty about the deal,” said the executive, whose bank has helped finance other airline acquisitions, including the recent $4.05-billion buyout of Northwest Airlines.
The bank executive said foreign lenders would feel more comfortable if the machinists union, which represents 23,000 United workers, joined the deal, a prospect that seems unlikely. Peterpaul said in the interview that an employee stock ownership plan, or an ESOP, is not part of the contract talks. He said UAL executives in previous meetings had refused to discuss with him what he considers to be key aspects of an ESOP plan.
“We asked them to describe how it would be governed and their business plan, and they would not give us that information,” Peterpaul said.
The foreign banker, who asked that his name and the name of his institution not be used, said UAL’s plummeting stock price was also causing lenders to hesitate. UAL shares fell $25.625 to close at $197.25 on the New York Stock Exchange. On Wall Street, traders said UAL shares could drop as low as $140 before they hit bottom.
The drop Tuesday was blamed on a statement by Citibank, one of two lead banks for the buyout group, that it had received “expressions of interest” from some banks willing to finance a UAL buyout but did not have an agreement from banks or from the buyout group on a revised offer.
Citibank had asked 20 leading banks in Europe, Japan and the United States, whether they would finance a transaction at $250 a share. The Citibank proposal included more generous fees for banks than the financing plan rejected by the banks last week.
The Japanese trade journal Nihon Keizai Shimbun reported in its Wednesday editions that of the large Japanese banks, only Mitsubishi Trust & Banking was ready to finance the UAL deal. The newspaper said Sumitomo Bank had decided not to participate and that other important institutions, including Sanwa Bank and Dai-Ichi Kangyo Bank, seemed reluctant to finance a takeover.
