Texas Air Corp. said Tuesday that it has asked Trans World Airlines to consider several steps, including selling its transatlantic routes and other valuable assets, in a last-ditch effort to thwart a hostile takeover by corporate raider Carl C. Icahn.
Texas Air also said it asked TWA to take steps to dilute Icahn's 45.5% TWA stake to as low as 33%.
The proposals, coming as Icahn still appeared to have the upper hand in the takeover battle, could be designed to at least force Icahn to raise his offer for TWA, giving Texas Air a higher profit by selling its shares, investment bankers said. Texas Air, which owns about 6.3% of TWA and has options to increase that percentage, said it did not want to block higher bids for TWA. Icahn's offer of $24 per share for TWA was topped last week by a $26-per-share offer from Texas Air.
TWA's board met Tuesday but failed to announce any decision on the Texas Air proposals or on the competing offers by Texas Air and Icahn. It said in a brief statement that it had taken the Texas Air proposals "under advisement" but that it was "mindful of Icahn's large stock position and the difficulty it poses to consummation of a merger with Texas Air." A TWA spokeswoman said the board could meet again soon.
Industry analysts and investment bankers said Icahn still has the upper hand, given that he could buy more shares, possibly at lower prices, to offset any dilution and is within less than 5% of gaining immediate control of the carrier.
"The market basically believes that Icahn has effective control," said one investment banker, noting that TWA's stock price has not moved close to the $26 price that Texas Air is offering.
Some investment bankers noted that a strategy of selling prized transatlantic routes to Texas Air could be hard to justify, given that TWA's board has resisted Icahn on the grounds that he has no intention of operating the airline but would break it up and sell its assets. Icahn has denied that charge.
Dilute Icahn's Holdings
Texas Air's proposals, contained in a Securities and Exchange Commission filing and in a letter to TWA's board, included asking TWA to call its $2.25 cumulative convertible preferred stock for redemption, which would create 6 million new common shares and dilute Icahn's stake to 38.3%. Texas Air added that it is prepared to exercise an option to buy 6.43 million new TWA shares, which would further dilute Icahn's stake to 33.1%. It also asked TWA to consider selling it shares of a leveraged voting preferred stock, which presumably would also dilute Icahn's holdings.
In a letter to TWA's directors, Texas Air also said it is prepared to offer "a fair price and terms" for an option to buy TWA's transatlantic routes, associated facilities and equipment and "possibly" TWA's computer reservation system.
However, Texas Air said in the SEC filing that none of the proposals would "be used to block TWA's stockholders from getting a higher price" than Texas Air's $26 a share "should such a price be available."