NEW YORK — Trans World Airlines said Friday that a deal for financier Carl C. Icahn to buy it had been canceled and replaced with an agreement that makes him chairman of the company. It also said that Icahn had arranged for investment bankers Drexel Burnham Lambert to raise $750 million in financing for the airline.
TWA said the merger agreement failed in part because Icahn had not been able to raise the cash for his original offer of $24 per share--$19.50 in cash and $4.50 in preferred stock. The new agreement eliminates the need for him to raise cash, offering TWA shareholders instead the option of keeping their common shares or exchanging them for an issue of preferred stock with a face value of $24 and paying an annual dividend of $7.25.
The airline said the company's deteriorating financial position contributed to the financing difficulties. It said it is now estimating its before-tax loss for 1985 at $140 million instead of the $70 million estimated when the pact was signed last Sept. 26.
Icahn, who controls more than 51% of TWA's stock, agreed that he would not exchange his stock for the preferred shares, which will be limited to 12 million. He also agreed not to sell any of his TWA holdings before Sept. 30, 1987, unless all other shareholders were offered the same terms, and he agreed not to increase his TWA stake to more than 75% before Dec. 31.
In a statement, Icahn said he believed that the money raised by Drexel would be better spent to strengthen the airline rather than to pay cash to the minority shareholders. The TWA statement said Drexel is "highly confident" of its ability to raise the money.
Icahn said of the $750 million to be raised by Drexel: "With these funds, I believe that TWA will be a strong and viable competitor capable of withstanding the current fare wars, the adverse impact on international traffic caused by recent acts of terrorism and any disruptions that may result from a possible strike by TWA's flight attendants, who thus far have not agreed to give TWA concessions so that its costs will be comparable to industry averages."
TWA said it had reached agreements with its pilots and machinists unions similar to those they had previously reached with Icahn, which grant significant wage concessions to the airline.
Also as part of the new agreement, two outside directors, W. L. Hadley Griffin and Morton I. Sosland, resigned, making Icahn's appointees a majority of the TWA board.
Began Purchases in Spring
Friday's agreement is the latest development in a takeover saga that began almost a year ago. Icahn began quietly buying TWA stock early last spring. When his activity became known last April, TWA reacted by fighting a takeover on several fronts: It sought to bar it in federal court, it tried to have legislation barring the takeover passed in Congress and it argued to the Department of Transportation that Icahn lacked experience operating an airline and would in any case break up the company and sell its assets.
Under the pact announced Friday, Icahn promised not to sell off the airline's PARS computerized reservation system.
Early last summer, Texas Air Chairman Francisco A. Lorenzo stepped into the fray, trying to outbid Icahn. TWA's unions, fearing Lorenzo's anti-union record at Continental Airlines, opposed this attempt. Although TWA and Texas Air reached a merger agreement in June, Icahn soon acquired control of enough stock to make that pact moot. After some more maneuvering, he and TWA negotiated the agreement signed in September.
But Icahn and Drexel soon encountered difficulty in raising cash for the deal because of the airline's growing losses.
TWA's stock closed at $15.125 on Friday, down 75 cents, before the new agreement was announced. It was trading for $22 as recently as Nov. 22.