Under pressure from its largest shareholder, Allegis Corp. said Friday that it will buy back two-thirds of its shares for $80 each as part of its massive corporate restructuring.
The buyback, worth an average of $50 for each outstanding share, wards off a threatened proxy fight from Coniston Partners, which owns 14% of Allegis, the parent of United Airlines.
On Wednesday, Coniston said it would try to oust the company's board if Allegis' new chairman, Stephen M. Wolf, went ahead with a plan to pay shareholders only $25 to $30 a share. Last October, before Wolf joined the company, Allegis had promised to pay shareholders at least $50 a share.
The payout is part of a corporate overhaul announced by Allegis last June to block separate takeover threats from its pilots and Coniston Partners. At the time, the company said it would sell its non-airline businesses, including Hilton International, Westin Hotels and the Hertz rental car businesses, and distribute the proceeds to shareholders.
Allegis has already sold Hilton International and Hertz and expects to close the $1.53-billion sale of Westin Hotels to a group led by Ft. Worth investor Robert M. Bass sometime next week.
Paul E. Tierney, a principal in Coniston Partners, said the partnership was generally pleased with Allegis' buyback plans, although he pointed out that "$50 is the bare minimum they said they would pay."
He said Allegis still needs to find a buyer for up to 50% of its Covia reservations system, and distribute that money to shareholders. He estimated that a Covia sale could be worth up to $6 a share.
An Allegis spokesman said the company has not decided what it will do with the proceeds from a Covia sale.
Will Begin Soon
Tierney said Coniston does not intend to increase its 14% stake in Allegis. He said the partnership intends to either tender shares or sell shares in the open market so that its Allegis stake will not exceed 14% after the share buyback is completed.
Allegis, based in Chicago, said it would begin the $2.84-billion buyback soon. The company said it is not certain whether it will pay cash or a combination of cash and debt securities for the shares.
In a statement, Allegis said the company will pay cash if it can complete a previously announced $2.4-billion debt restructuring with a group of banks led by Citicorp. However, Allegis said a lawsuit brought by the International Assn. of Machinists seeks to prevent the share repurchase and could scuttle Allegis' plans to refinance its debt.
Allegis needs to borrow about $1 billion to finance an all-cash share repurchase.
If Allegis cannot borrow the funds from its bankers, the company said it will then redeem the shares with a combination of cash and debt securities. Under this plan, shareholders would receive $51.20 cash and $28.80 in debt securities for each share tendered.
Candace E. Browning, an airline industry analyst with Wertheim Schroder, a New York investment firm, said it is unlikely that the machinists' lawsuit would block Allegis' debt restructuring.