Davis Sounds Out UAL Unions on Support for New Buyout Bid
Los Angeles billionaire Marvin Davis is seeking the support of United Airlines’ labor unions for a new bid for UAL Corp., the airline’s parent, sources close to the situation said Friday.
Discussions between Davis adviser David Batchelder and representatives of United’s pilots, machinists and flight attendants indicate that Davis still wants to buy UAL. Davis’ renewed efforts to acquire the airline follow the collapse of a $300-a-share, $6.75-billion offer from an employee-management group led by UAL Chairman Stephen M. Wolf.
Davis started UAL’s takeover turmoil in August with an unsuccessful $240-a-share bid.
Sources close to the situation said Davis believes that it would be difficult to finance a UAL takeover without support from United’s labor unions. Opposition from the machinists union is one reason why banks refused to finance the failed employee-management bid.
A source said Batchelder hasn’t discussed a price for UAL in his talks with United’s unions. But knowledgeable sources said Davis is expected to have a proposal ready by late next week if United’s pilots, machinists and flight attendants are receptive to a new offer.
Batchelder declined comment on Friday, and advisers to United’s unions couldn’t be reached.
Even with union support, Davis faces a critical stumbling block in his quest for UAL. A standstill agreement Davis has with the company bars him from making an offer for less than $300 a share, or from taking actions to remove UAL’s board.
Davis isn’t expected to bid $300 a share for the company, because its shares are now trading at nearly half that price. But Davis could make a new, lower offer if a third party makes an offer and UAL’s board permits Davis to counter-bid.
Rumors about a new bid for UAL gained strength earlier this week with speculation that Coniston Partners, a New York investment firm, had acquired a large stake in UAL and was preparing to force a sale or recapitalization of the company.
Paul Tierney, a partner in Coniston, declined comment on rumors that the partnership had acquired more than 5% of UAL’s shares. Pressure from Coniston two years ago forced UAL to undergo a corporate overhaul that included the sale of its hotel and rental car operations, and a large stock repurchase program.
It isn’t clear whether the unions would work with Davis. In an effort to get the unions behind him, Davis has indicated that he is willing to offer employees a small ownership stake in UAL. Ownership is important to United’s pilots, who played a major role in the failed bid, which would have given employees a 75% stake in the airline.
The pilots were bitterly disappointed when the employee-management bid failed and have been working with their advisers to come up with an alternative. The employee-management group formally withdrew its original bid on Friday.
But the pilots have been receptive to Davis in the past. Sources familiar with the situation said the pilots told Davis last summer that they could support his earlier bid for UAL if it included ownership for employees. The pilots later aligned with UAL management because the collapsed deal offered them a substantial ownership stake.
Davis might have difficulty winning support from the machinists. They have opposed a debt-financed takeover of the airline, saying the transaction would put UAL’s financial health at risk.
