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Analysts See New Suitor for TWA : Icahn Apparently Having Difficulty in Raising Money

December 19, 1985|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — Trans World Airlines stands a good chance of being bought by a new suitor as a result of financier Carl C. Icahn's apparent difficulties in trying to raise money to complete his purchase of the airline, analysts said Wednesday.

But industry experts speculated that many would-be buyers might be put off by TWA's apparently declining financial prospects, which may also have cooled Icahn on the deal.

"All the participants involved in this transaction have come to the realization that TWA had more than just high labor costs," said Timothy Pettee, airline analyst with L. F. Rothschild, Unterberg, Towbin.

"There are other problems as well. There is a revenue problem; there is a route system problem. They have an inadequate, less-efficient hub in St. Louis. That is what the banks have found out and that is what the potential investors have found out and that is what Mr. Icahn has found out."

Until recently, analysts have viewed TWA as a potentially attractive acquisition candidate because of the success that Icahn had in extracting concessions from the air carrier's pilots and machinists unions. Louis Marckesano, airline analyst of Janney Montgomery Scott, said the concessions would help TWA cut its labor costs by $200 million to $250 million annually.

But analysts now discount the likelihood of a TWA acquisition by some of the companies that have been mentioned as potential buyers. They said American Airlines probably isn't interested because its domestic routes are similar to TWA's.

That similarity also could prompt the Justice Department to oppose a TWA-American merger on antitrust grounds.

Although Resorts International, a casino operator, tried to take over TWA earlier this year, analysts doubt whether it still wants the air carrier. They note that Resorts now owns about 12 million shares of Pan American World Airways that it would have to sell before buying TWA.

TWA's routes would dovetail well with Eastern's, but industry experts noted that the Miami-based carrier's weak financial condition probably would thwart such a merger.

Analysts said Delta, which might be attracted by TWA's hub in St. Louis, and Northwest Airlines are more likely buyers. They said Northwest has the financial strength to buy TWA and might want to do so to avoid being taken over itself.

The Wall Street Journal on Wednesday quoted industry sources as saying that American, Northwest and Resorts were approached about buying TWA. The companies declined to comment on the report.

Perhaps the leading candidate to take TWA off Icahn's hands, however, is Texas Air, which was edged out by Icahn earlier this year in a bid to buy the airline and whose bid was resisted by the carrier's unions. In a letter to TWA earlier this week, Francisco A. Lorenzo, Texas Air's president, offered to buy the airline for $22 in cash for all of the outstanding 34.5 million shares of its stock.

The Texas Air offer was prompted by indications that Icahn's plans for financing the TWA acquisition have run into trouble. Earlier this month, Icahn, who already owns 51% of TWA's stock, said he would revise his offer for the remaining shares.

Icahn's new offer reportedly would be a combination of $14 to $15 in cash and between $9 and $10 in a new preferred stock, instead of the previously announced $19.50 in cash and $4.50 in preferred stock. Because the preferred stock would likely trade at less than face value, stockholders, in effect, would be receive less for their shares.

In addition to the financing difficulties, Icahn may have other reasons for wanting to back out of the TWA acquisition. The airline recently posted disappointing third- quarter financial results, and analysts recently scaled back their projections for its earnings in the fourth quarter of 1985 and for next year.

Some sources close to the airline said that TWA management would be pleased if Icahn pulled out of the deal. They noted that the financier immediately exerted his influence and fired some top executives after gaining control of the airline earlier this year.

'They want anyone but Icahn," said the former president of a major airline who asked not to be identified. "They feel Icahn is bad news. He fired some good people and that has totally demoralized the airline."

The airline executive cited the recent departures of Charles L. Glass, who was a TWA senior vice president and comptroller, and Stuart G. Long, the senior vice president of marketing and sales. Other high-ranking executives also have left the airline as part of what a TWA spokesman described as a "reorganization."

Another senior executive said that "there has been such a big management turnover, no one can make any decisions and it has eliminated any kind of effectiveness."

If Icahn sells out, analysts said, he will do it at a tidy profit. Marckesano estimated that Icahn, who bought his shares at an average price of between $16 and $17 each, would make about $90 million if he sells out to Texas Air at its current offer of $22 in cash.

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