USAir Group Inc.'s board of directors last week adopted the "poison pill" antitakeover defense following heavy trading in USAir shares and rumors that the profitable airline based at National Airport might become the target of an unsolicited takeover bid.
USAir Chairman Edwin I. Colodny said the takeover defense was not adopted in response to any specific effort to acquire control of the company, and added that he was not aware of any such effort. Both Northwest Airlines Inc. and Delta Airlines Inc. have been rumored recently as possible bidders for USAir.
USAir stock has risen from 29 7/8 at the end of November to last Friday's close of 35 3/4, down 1/8.
"They put this in as a defense against a hostile takeover," said Louis Marckesano, an analyst with Janney Montgomery Scott. "I don't know how neccesary it was, but they have a better feel for who might be nibbling at their heels."
The poison pill adopted by USAir is designed to force a potential bidder to negotiate with USAir's board of directors, rather than making an offer directly to USAir's stockholders. The pill accomplishes this by making it prohibitively expensive for a bidder to acquire USAir without the support of the board of directors.
While the poison pill discourages hostile takeover bids (bids opposed by USAir management), it would not block a friendly merger that has the support of USAir directors, who retain the right to dissolve the poison pill.
The company said the device is designed to assure that all USAir stockholders receive "fair and equal" treatment in the event of any proposed takeover and to guard against "abusive tactics to gain control of USAir without paying all shareholders a full and fair price."
In Carl Icahn's acquisition of Trans World Airlines Inc., all TWA shareholders did not receive the same price. After Icahn acquired more than half of TWA's shares, he lowered his offer for the remaining shares, and TWA stock plunged in value.
The USAir takeover defense is designed to guard against such situations. But opponents of the poison pill have complained that it deprives stockholders of the right to decide whether they want to accept a takeover bid by giving directors additional power to reject offers. Many companies have adopted measures similar to the USAir poison pill since the Delaware Supreme Court recently upheld its legality in certain situations.
The device is called the "poison pill" because of the disastrous financial consequences it could have for an acquirer who buys all of USAir's outstanding stock without the support of USAir's directors. In such a situation, USAir stockholders would have the right to buy stock in the acquirer for half of its fair market price, leaving the acquirer financially strapped and with diminished voting control.
In the event a bidder makes an offer its directors like, USAir's board can dissolve the poison pill by paying USAir stockholders 3 cents per poison-pill right. USAir said poison-pill "rights" will be distributed to its stockholders on Jan. 31 and will expire in 10 years.
Wall Street analysts said USAir's attractiveness as an acquisition target is its consistent profitability during the last five years. USAir, primarily an East Coast carrier, operates a "hub" in Pittsburgh, where it dominates airline traffic.
Analysts said Northwest could be interested in acquiring USAir because it will soon face increased competition for passengers on routes to the Far East, after United Airlines, a strong domestic carrier, completes the acquisition of Pan Am's Pacific Routes. They said Northwest would be in a better position to compete if it acquired a strong domestic carrier such as USAir that could "feed" it passengers for overseas flights.
While speculating about who might bid for USAir or who USAir might acquire instead, analysts generally praised the airline's new poison pill.
"They don't want to be acquired or have someone come in and do what Carl Icahn did to TWA," said Paine Webber analyst John Pincavage. "You avoid that by putting these devices into place before overtures are made. TWA had no takeover defense when Icahn's bid was made. If somebody comes along and offers USAir an astronomical price like $100 a share for USAir, the USAir directors can just dissolve the poison pill [and accept the offer]."
"It is a prudent move," said Shearson Lehman Brothers analyst Robert Joedicke.