Pan Am, TWA Are No Closer to Altar After Day of Barbs
The mudslinging between Trans World Airlines Chairman Carl C. Icahn and Pan American World Airways intensified Wednesday, with the two ailing carriers acting little like companies that want to complete a friendly merger.
The opening shot came in a letter to Icahn from Richard H. Francis, Pan Am’s executive vice president and chief financial officer. Francis charged that Icahn was “not prepared to pursue” his offer of 10 days ago to combine the transatlantic carriers.
Within minutes, Icahn fired back, stating in a letter of his own to Francis: “Once again you have misstated and misunderstood TWA’s position. Our offer to shareholders remains in place, subject to usual and customary conditions for a transaction of this type.”
Icahn had offered Dec. 16 to buy Pan Am’s 150 million outstanding shares for $1.50 in cash and $1 a share in subordinated notes, for a total of about $375 million in cash and notes. Combined, the airlines could sell numerous overlapping routes and perhaps emerge as a desirable candidate for takeover by a stronger carrier.
After some delay, Pan Am Chairman Thomas G. Plaskett expressed interest in a combination. But on Christmas Day, the prospects began to dim when Icahn--in an acid letter to Plaskett--complained that Pan Am was sending “conflicting attitudes and signals” that “cause us to wonder if you are serious.”
In his latest broadside, Icahn said one condition of his offer would be that there be “no material change to Pan Am, such as bankruptcy, a sale of assets for less than fair value, defaults in major borrowings or obligations or other similar events.”
That seemed to be a reference to Icahn’s complaint in his earlier letter that Pan Am has acted improperly in discussing a merger with TWA while at the same time negotiating to sell one of its most valuable assets--the Boston-New York-Washington shuttle--to another party. Pan Am reportedly has held talks with Northwest Airlines concerning the sale of the shuttle, with financing to come from a Portland, Ore., firm.
Icahn has also complained that the pending sale of Pan Am’s London routes to United Airlines was underpriced. Pan Am is to get $290 million for the London routes as part of a $400-million deal that also involves the sale of other assets.
In his letter Wednesday to Icahn, Francis said Pan Am’s perception that TWA was insincere about a merger stemmed from discussions between the sides earlier in the day.
The sentiment at TWA was not much warmer. “They don’t seem ready to be a party to the wedding,” said Mark Buckstein, TWA general counsel.
Icahn, in a phone interview, said the talks Wednesday centered on the details of TWA’s proposed scheme for keeping cash-poor Pan Am afloat long enough to complete a merger--a scheme that contemplates that the proud pioneer carrier will have to file for Chapter 11 bankruptcy protection.
“We told them the terms of our financing proposal,” the billionaire financier said. “The debtor-in-possession financing is the only kind we will give them.”
In such financing, TWA would be at the head of the line in receiving back its investment from a bankruptcy court. With only $40 million in cash reserves as it goes into its slow winter period, some analysts suspect that Pan Am will end up in Chapter 11 soon. One indicator: After it missed some airplane lease payments, Airbus Industrie of North America on Monday gave Pan Am only two weeks to catch up.
Pan Am would rather get bridge financing from TWA--a temporary loan to help it in its cash crunch until the deal with United is completed and a merger with TWA is sewn up.
