NEW YORK — In a surprise capitulation to dissident investors and employees, Allegis Corp. said late Tuesday that Chairman and Chief Executive Richard J. Ferris has resigned and that the company will now take steps to "address the interests" of big stockholders and all employees.
The company said those steps will likely include the sale of its Hertz rental car and Westin and Hilton International hotel units, as well as a restructuring of its United Airlines subsidiary in a "broad-based" employee stock ownership plan.
Allegis also said that Frank A. Olson, currently chairman of Hertz, has been named to succeed Ferris and that Chairman Emeritus Edward Carlson will rejoin the board. Olson will soon recommend to shareholders that the company be renamed United Airlines Inc., the company added.
Under Ferris, 50, the company had spent millions promoting its new name as part of the now-deposed executive's grand plan to make Allegis an "integrated" travel company with subsidiaries ranging from rental cars to airlines.
Couldn't Be Reached
"(Ferris) was the architect of what can now be called that ill-fated program," said one securities analyst who has followed the company. Ferris could not be reached for comment late Tuesday.
The dramatic turn of events was announced after a daylong special meeting of Allegis directors in New York. Industry analysts said they had not been expecting any major announcement to come out of the meeting. Instead, they had thought that the directors were merely discussing the three competing plans to overhaul the Chicago-based company.
A statement issued after the meeting in the name of Charles F. Luce, senior member of the board, said directors had asked Allegis' financial advisers to "reconsider all existing proposals for restructuring Allegis with a view toward recommending . . . within two or three weeks a plan to maximize shareholder value.
"The board presumes that such a plan will include the sale of the Hertz, Westin and Hilton International hotels, and a recapitalization of United Airlines, potentially involving the active participation of all employee groups in a broad-based ESOP."
The battle for Allegis began on April 5 when pilots of United, apparently dissatisfied with Ferris' plan to make the company less dependent on the airline, offered to buy the carrier from the parent company in a $4.5-billion transaction. The pilots offered to cut their own salaries to help pay for acquisition if other employees also would go along.
That, in Wall Street parlance, put the company "in play" as a takeover target. Last month, the investment group Coniston Partners said it had acquired 13% of Allegis' stock and would try to take it over, cut it up and sell the pieces.
Trying to fend off Coniston and other potential Wall Street suitors who believed that Allegis' parts were worth more than its whole, Allegis itself unveiled on May 28 a $3-billion corporate restructuring that included a special payment of $60 per share but would have more than doubled its indebtedness.
That proposal, however, did not satisfy either Coniston, which vowed to continue its takeover fight, or the United pilots, which last week made a sweetened proposal to buy all of Allegis and promptly sell off its Hilton International hotel operations for $1 billion to British investors.
(Earlier Tuesday, the pilots had sued Allegis to force the company submit the new proposal for a vote by shareholders. The company declined to comment on the lawsuit, which presumably now will become moot.)
"It did not appear that there was going to be a reconciliation between the company and the pilots," said Louis Marckesano, an analyst with the Janney Montgomery Scott investment firm of Philadelphia. "Either management would recapitalize or the pilots would recapitalize. It looks like the recapitalization (proposed Thursday) is along the the lines of the pilots' plan."
Reached at his home late Tuesday, a spokesman for the pilots, who asked not to be identified, said that the new Allegis plan "goes in the right direction. Now we have to see the specifics."
Some industry analysts viewed the events as clear evidence that Allegis directors felt the company's own restructuring plan could not succeed, given the continuing opposition of the pilots and big investors such as Coniston.
"This is a clash of short-term shareholder desires with long-term management ideals," said one analyst, who asked not to be identified.
He said that a restructuring of industry giant United, if it includes a reduction in labor costs as part of an employee stock ownership plan, would increase competition in an already fiercely competitive market.
"United has historically been the 900-pound gorilla that the leaner and meaner competition ran circles around," he said.