The board of UAL Corp., parent of United Airlines, directed its advisers on Thursday to explore the possible sale of a 75% stake in the company to unions representing the airline's pilots, flight attendants and machinists. But it also invited other acquisition offers--including that of former suitor Marvin Davis of Los Angeles.
The board, under pressure to boost UAL's stock price, instructed its legal and financial advisers to study a possible recapitalization of the company as well.
In a surprise move, the board cleared the way for a new bid by billionaire investor Davis by freeing him from an agreement that required a minimum offer of $300 a share. But such a bid appeared unlikely. A spokesman for the real estate and oil magnate said Davis neither sought release from the agreement nor was working on a bid.
Davis had triggered UAL's takeover turmoil with a failed $240-per-share offer last August.
The board also released British Airways from a similar agreement, but the airline said it is no longer interested.
The board faces pressure from the New York money-management firm of Coniston Partners to raise the value of UAL shares. Coniston owns 11.8% of UAL's stock and has threatened to oust the board unless it acts. The union proposal is likely to appease Coniston, at least for now, because the firm favors an employee transaction and has said it would help finance such a deal.
UAL's board said it would review all offers, including the union proposal, at its next meeting on Feb. 22. It added that it may not receive an acceptable offer.
The board also indicated that the current union proposal is too sketchy to constitute an acquisition offer. Indeed, the union proposal is far from complete and doesn't address significant details. For example, the unions have not decided how much to pay for UAL, or what form the offer would take.
Stock traders on Thursday speculated that the unions would offer a combination of cash and securities worth between $200 and $225 a share. They said a recapitalization without union ownership would probably be worth $190 a share.
UAL common stock fell $3 to $158.50 in trading on the New York Stock Exchange on Thursday. Traders were disappointed at the airline's dismal fourth-quarter earnings and unhappy that the takeover drama remains unresolved.
Conspicuously missing from the union proposal is a role for UAL Chairman Stephen M. Wolf, a proponent of employee ownership who led a failed employee bid for the airline last fall. Wolf removed himself from buyout negotiations shortly before Christmas, turning discussions over to UAL's legal advisers, and hasn't met with the unions since.
Wolf's credibility with employees suffered after the $300-per-share pilot-management bid collapsed last October, triggering a one-day stock market mini-crash. Wolf and John C. Pope, UAL's chief financial officer, were criticized for discouraging lenders from financing the deal by offering skimpy profits.
Wolf also came under fire when it was revealed that he stood to make $76 million from his stock and options if the transaction succeeded.
People familiar with the situation said it it still possible that Wolf will join the proposed union-led transaction, but union leaders have privately discussed possible replacements for him should he choose not to participate and resign.
Wolf was unavailable for comment.
Airline stock analysts said the union proposal might be difficult to finance, despite the fact that the unions are willing to invest about 13% of UAL's payroll, or $2 billion over five years, mostly in the form of wage concessions. The unions haven't yet held discussions with lenders.
Mark E. Daugherty of Dean Witter Reynolds in New York, said lenders have grown increasingly jittery about leveraged deals, especially since the collapse of Campeau Corp.'s retail empire. In addition, he said, UAL, along with the rest of the airline industry, is experiencing rising costs and softening passenger traffic.
"It's a hostile environment all around," Daugherty said.
UAL also reported that fourth-quarter earnings dropped 67% to $6.8 million due to rising fuel cost and expenses related to last October's failed takeover. On an operating basis, the fourth quarter was a disaster, with UAL recording a $31.3-million loss, contrasted with a $122.8-million profit in 1988.
For all of 1989, it said, earnings fell 14% to $324.3 million, excluding a gain in 1988 from the sale of partnerships in its Covia computer reservation system. Fourth-quarter revenue rose 9% to $2.4 billion, increasing the year's total to $9.8 billion, an 8% rise.