United Drops Idea of Acquiring USAir : Airlines: Deal would have had to meet all criteria set forth by UAL, including maintaining 55% employee ownership stake.
United Airlines said Monday that it will not seek to acquire USAir Group Inc., the nation’s fifth-largest carrier, avoiding a potential bidding war for leadership in the domestic market.
The decision by directors of UAL Corp., United’s parent company, had been predicted by many industry analysts who said a merger would be more costly and require more worker concessions than UAL’s employee owners would tolerate.
“While our study confirmed a transaction would have significant revenue benefits from increased customer choice, we were disappointed we were unable to satisfy all the criteria we set for a potential transaction,” UAL Chairman Gerald Greenwald said in a statement.
Among UAL’s criteria were that a deal substantially boost UAL stock and not impede the company’s goal of attaining an investment-grade rating for its securities.
Any deal would also have needed the support of UAL’s workers, and would have had to keep their UAL ownership stake at 55%, Greenwald said.
UAL disclosed Oct. 2 that it was talking with USAir about a merger.
A decision to pursue the carrier could have started a bidding war with Dallas-based AMR Corp., parent of American Airlines, because an acquisition of USAir would give either United or American undisputed leadership among domestic carriers.
USAir said it will seek other solutions to its financial woes. The Arlington, Va.-based firm’s long-term debt totals nearly $3 billion, executives have said, and employees have given little support to an effort to trim $1 billion in costs.
“This industry will change in the years ahead, that is inevitable,” USAir Chairman Seth Schofield said in a statement. “And this airline will be ready and fit to play a leading role in that change.”
The prospect of a USAir buyout had prompted comments by analysts and other observers that the U.S. airline industry was ripe for consolidation.
Acquiring USAir, valued at an estimated $8 billion to $10 billion, would have given United a stronger presence along the East Coast, including a lucrative New York-to-Washington shuttle.
But detracting factors included USAir’s costs--the industry’s highest--and the difficulties of bringing USAir employees into UAL’s employee-ownership plan.
“There’s going to be a lot of costs upfront with merging the different systems,” said Brian Harris, an airline analyst at S.G. Warburg & Co.
Some United employees had expressed concern about USAir’s financial troubles. The carrier reported annual operating losses from 1990 through 1994 and had a net loss of $716 million last year. UAL made a profit of $11 million in 1994.
USAir has also talked with AMR, but AMR said last week it wouldn’t start a bidding war for USAir.
UAL’s decision, announced after the stock market closed, caused USAir’s shares to tumble to $13 in after-hours trading. The stock had inched up 12.5 cents to $15.375 on the New York Stock Exchange. UAL added 12.5 cents to $182.625 on the NYSE in regular trading.
