UAL OKs Employee Buyout : $4.2-Billion Deal Stems Proxy Fight

UAL Corp. directors announced today that they have agreed to sell United Airlines to its employees in a $4.2-billion deal that would create the nation’s largest employee-owned company.

The agreement was struck in round-the-clock negotiations between the UAL board and a group the employee unions set up to stage a buyout, United Employee Acquisition Corp.

The move heads off a threatened proxy fight with the parent company’s largest shareholder but puts UAL back in a familiar position--floating a deal with uncertain financing.

Under the agreement, worth $201 a share, employees will exchange $155 in cash, $35 in UAL notes and an estimated $11 worth of securities in UAL subsidiary Covia Corp. for each UAL share.

There was no immediate word on how the deal was to be financed. A source close to the negotiations told Associated Press that the parties had no firm financing for the deal.

UAL, parent of United Airlines, said it expects to conclude a final agreement promptly.

At a news conference today in New York, representatives of the unions said the agreement calls for employees to give up $2 billion in concessions over five years, including $300 million in the first year and $500 million in the fifth year.

The breakdown of ownership in the new company would be as follows: pilots owning about 37.9%; machinists owning about 35.7%, non-union employees about 14.3% and flight attendants about 12%, the unions said.

Machinists’ union Vice President John Peterpaul predicted that banks would look favorably on the deal.

UAL’s largest shareholder, Coniston Partners, immediately called off its threatened proxy fight to oust the company’s board at the April 26 annual shareholder meeting. Coniston holds an 11.8% stake.

The announcement met with a lukewarm reaction, however, from some analysts, who questioned whether banks would be willing to back the bid without a strong management group behind it.

The fate of UAL Chairman Stephen Wolf has been in doubt because of union indications made before today that they would dump Wolf in the event of an employee buyout.

Pilots union head Frederick Dubinsky said in New York today that Wolf would be replaced.

“It’s our intention to put together a top-notch senior management team . . . and that will include a new (chief executive officer),” he said.

UAL’s stock opened up $3.50 a share at $169 on the New York Stock Exchange but by midday had slid back to $165.50, unchanged from Thursday.

The agreement marks another chapter in a takeover saga that began in August when Los Angeles investor Marvin Davis made a $5.4-billion offer for the company. Davis said earlier this week he would not make another bid.

But his initial offer sent United’s pilots and management scrambling to come up with their own bid. In September, UAL directors accepted a $6.75-billion offer from the pilots, management and British Airways PLC that also included labor and wage concessions.

The proposal was killed after the would-be purchasers were unable to line up enough financing.