Lawyers for Texas International Airlines and Continental Airlines, locked in an increasingly complicated takeover battle, sparred yesterday before the Civil Aeronautics Board -- a group of seemingly reluctant generals.
Texas International, which has $93 million worth of Continental's stock tied up in a board-approved nonvoting trust, has asked the CAB for authority to use its considerable holdings -- or another mechanism -- to prevent the Los Angeles-based airline from going forward with a plan to give control of the airline to its employes.
In its attempt to thwart the takeover bid by Texas International, Continental has devised a plan to issue 15.4 million new shares of stock, more than double the amount currently outstanding, to its employes through an employe stock ownership plan. TI contends that the plan, which won't be submitted to Continental's sahreholders, will dilute significantly the value of the holdings of existing shareholders, including TI's 7 1/2 million shares, and will damage the overall financial stability of the airline.
Right now, TI's shares of Continental stock, 48 1/2 percent of the total, are being held in a nonvoting trust designed to insulate it from exercising any control of Continental while its application to acquire is pending at the CAB.
Yesterday, John W. Barnum, TI's lawyer, argued that the CAB should allow TI the same rights to protect its investment that shareholders generally have. There are two ways that could be done, he suggested. Under one plan, TI would place itself in trust with a group of independent trustees appointed to run the company; that would allow TI's parent company, Texas Air Corp., to take immediate control of Continental.
If the board will not go along with that unusual request, Barnum argued for a second course of action: that TI be given the right to put up for election to Continental's board a group of independent directors, approved by the CAB, who would represent a majority plus one of the board; they would be responsible for running the airline while the TI's application to acquire Continental is pending. Continental's annual shareholders' meeting is scheduled for May 6.
Barnum contended that the board's statute requires approval of some of the relief sought by TI unless it determined that the relief had anticompetitive consequences or was inconsistent with the public interest and taht the opponents of the plan had the burden of showing that it would have the negative effects.
The opponents didn't see it that way. James T. Lloyd, Continental's attorney, argued that TI was seeking the board's protection and wanted to preserve its dominant sahre in Continental.
"The ballgame is over if you do this," he said. He disputed TI's characterization of the employe stock ownership plan, arguing that it was lawful and represented a competing source of capital for Continental.
Although CAB members occasionally expressed doubt about whether they should get into the issue of the employe stock plan, it came up repeatedly.