UAL Stock Plunges as the Market Bets Against Buyout Bid

UAL Corp.’s shares dropped sharply Monday on speculation that UAL directors will reject a buyout offer from the company’s unions today.

The shares plunged $11.50 to $91.25 on the New York Stock Exchange in response to the United Airlines unions’ announcement Sunday that four banks had withdrawn their support for the buyout.

The unions said Sunday that they would offer a combination of cash and securities for parent UAL, financed partly with $200 million from the pilots’ retirement account, funds from aircraft manufacturers, and up to $1 billion from UAL’s treasury. The unions said the offer would be worth more than $150 a share.

However, stock traders and investment analysts said Monday that UAL’s directors are likely to reject the union offer as inadequate.

“The board will not swallow it,” said Sharon Kalin, a New York arbitrager who owns UAL shares. “It is just too light in terms of value.”

A rejection is likely to touch off more uncertainty about the airline’s future. The company could face continued pressure for a sale or restructuring from Coniston Partners, a New York investment company that has suffered paper losses in the millions on its UAL stock. Coniston has previously threatened to take steps to oust the UAL board if it doesn’t act to raise the price of UAL’s shares. Coniston is said to support the union offer.

The board also faces pressure from its unions--pilots, mechanics and flight attendants--if it rejects the offer. All three unions have amendable contracts and are expected to bargain aggressively for higher wages. The unions have already threatened to strike if contract negotiations fail.

Though the unions and Coniston have worked together in the past, it is unlikely they will team up to unseat UAL’s board. Gerald Greenwald, leader of the union buyout group, has said he will not participate in a hostile takeover. Greenwald is the former vice chairman at Chrysler Corp.

Moreover, traders said, it is unlikely that UAL’s board would take on debt in order to provide a payment to Coniston and other restless shareholders. Any restructuring that pays investors but leaves employees empty-handed would only deepen the rift that already exists between UAL’s management and its employees, observers said.

Kalin speculated that the UAL board would attempt to reach a compromise with the unions that would increase the value of UAL’s shares and give employees an ownership stake. Critical to such a compromise, she said, is the appointment of Greenwald to replace current UAL Chairman Stephen M. Wolf.