UAL Agrees to Pay Fees on Takeover Bid

The board of UAL Corp., the parent of United Airlines, on Wednesday agreed to pay the final $32 million in fees related to a failed employee takeover attempt despite objections in Congress and from a large shareholder.

The board also said that its advisers would meet with Coniston Partners, a New York money manager that has threatened to replace the board and sell the airline. The board’s financial adviser, First Boston Co., has previously met with Coniston, the airline’s largest shareholder.

In a statement issued after a seven-hour meeting, the board said it received no buyout proposals but that discussions were continuing with an employee group about a possible takeover. The group, led by United Chairman Stephen M. Wolf, is trying to revive the failed employee bid for the airline, but United’s unions have reacted coolly to his revised proposal.

The board on Wednesday agreed to pay $32 million to the Wolf group’s advisers in connection with the failed $6.75-billion, $300-a-share offer. The board previously paid the Wolf group’s lawyers and bankers $27 million.

The fees have been attacked by Sen. Howard Metzenbaum, an Ohio Democrat who heads a Senate committee that is looking into takeover-related fees. And earlier this week, the California Public Employees’ Retirement Fund called on UAL’s board to investigate whether the payments are proper. The pension fund, an influential institutional investor, owns more than 145,000 UAL shares.

Kayla Gillan, staff counsel for the pension fund, said the airline company’s board appears to have been unduly generous with the advisers to UAL managers. “It doesn’t look like an arms length transaction,” she said.

Gillan also said the fees seemed especially high for a failed transaction. “It looks like a reward for failure.”

The pension fund lawyer said she expected UAL to pay the fees, as required by its merger agreement with the Wolf group. She said, however, that the fund intends to press for an investigation by the UAL board’s audit committee “to see whether those fees should have been part of the merger agreement in the first place.”

UAL’s shares dropped $8 on Wednesday, closing at $168.75 on the New York Stock Exchange. UAL disclosed the results of its board meeting after the market closed. The stock fell as traders speculated that bids for the company would not materialize. Besides the Wolf group and Coniston, takeover specialists Saul P. Steinberg, Robert M. Bass and Marvin Davis have expressed an interest in the company.

Separately, UAL said it plans a major expansion in the Pacific that would double its service to Asian cities by next August. As part of the plan, the airline plans mini-hubs in Seoul and Taipei. United said that it would add some flights to Asian cities, but that most of the expansion would be accomplished by replacing older, smaller jets with newer, larger ones.