AMR Plans to Spin Off Majority Interest in Sabre Holdings
AMR Corp. said it plans to spin off its 83% interest in Sabre Holdings Corp., a deal worth about $6.2 billion, in an attempt to attract more business for the computer reservation company and enhance the value of both firms.
AMR, parent of American Airlines, said Tuesday it will distribute its 107 million shares of Sabre stock to shareholders at the rate of 0.7 of a Sabre share for each AMR share.
Sabre shareholders, including AMR, also will receive a special, one-time $675-million cash dividend, or about $5.21 per share.
The spinoff, planned for March, will make it easier for Sabre--which also owns one of the nation’s leading online travel services in Travelocity--to pursue contracts with other carriers who were reluctant to use Sabre because of its ties to AMR.
Ray Neidl, an analyst who follows the airline industry for ING Barings in New York, said the spinoff will also enable both stocks, particularly AMR’s, to reach their potential.
“American has been undervalued. But you may see that change once the Sabre spinoff is complete,” he said.
Investors liked the strategy. On the New York Stock Exchange, shares of Sabre rose $2.88 to close at $54.75, while AMR rose $4.84 to $68.50.
Sabre, the nation’s largest computer reservation system for travel agents, also named William Hannigan, 40, its new chief executive and president, effective immediately. Hannigan joins Sabre from SBC Communications Inc., where he served as president of SBC Global Markets.
Sabre officials are hoping the move will increase the company’s business. Twice this year, American Airlines rivals broke off talks that were leading toward letting Sabre handle their reservations, ticket sales and information technology.
“Certainly with our independence, it’s more clear [to major carriers] that success for Sabre won’t mean enrichment for American,” Hannigan said.
Donald Carty, AMR president and chief executive and also chairman of Sabre, agreed.
“By having two completely separate companies valued in the market, both AMR and Sabre should benefit from clearer market comparisons with their peers,” Carty said.
The spinoff depends on getting a favorable ruling from the Internal Revenue Service that the transaction will be tax-free to AMR and its shareholders for income tax purposes.
The plan also is subject to approval of AMR’s board and the declaration of a stock dividend. Sabre plans to borrow between $350 million and $450 million to pay the dividends.
