A federal judge yesterday temporarily blocked an attempt by a Texas Air Corp. subsidiary to buy out Eastern employes who hold preferred stock in Eastern.
Judge Thomas Penfield Jackson issued a preliminary injunction barring anyone involved in the litigation from accepting a tender offer by TAC Acquisition Inc. for any of the shares or from transferring any of the stock.
Unions representing Eastern employes and trustees for employe pension funds that hold the preferred stock had sought the injunction. The unions argued that the proposed offer violated the terms of collective bargaining agreements and of trust agreements. Texas Air had asserted that provisions of the Employee Retirement Income Security Act (ERISA) might require the trustees to accept the offer of $16 a share, even though it might otherwise appear to violate restrictions on transfer of the stock contained in the trust agreements.
While that issue is being decided, Jackson said, he is putting the tender offer on hold.
While the arguments over the preliminary injunction turned on fairly arcane points, including the possible collision between requirements on the trustees and the desires of the employes for whom they hold the shares in trust, the stakes in the litigation are potentially large.
Employes of Eastern, which itself is now a subsidiary of Texas Air Corp., received the preferred stock in 1984 in return for substantial wage reductions totaling about $263 million. The holders of the preferred stock are entitled to receive dividends -- if Eastern declares dividends -- of up to $8.67 a year for 10 years, for an eventual total of $86.67 per share. In addition, the holders of the preferred stock also retain a measure of control over Eastern.
Attorneys for Robert O. Harris, trustee for the International Association of Machinists Stock Ownership Investment Fund, argued that Texas Air -- which was offering for up to 1.6 million shares, or about two-thirds of the stock -- failed to disclose in its offer information that might suggest that the stock was worth more.
According to a filing with the Securities and Exchange Commission, Harris received an opinion on Aug. 6 from Brian M. Freeman, an investment adviser who was involved in negotiating the 1984 agreement between Eastern and its employes, that the offering price "is not fair to the plan and its participants from a financial point of view."
Texas Air had argued against the injunction, saying that the company stood to lose the money it had invested in making the offer and that granting the injunction would result in continuing disruption at Eastern because of allegations being made in the litigation.
Jackson said that Texas Air and TAC had failed to demonstrate that they would suffer any harm other than delay under an injunction. The expense of making the offer would be lost only if the offer were withdrawn or allowed to expire. The offer was originally set to expire at midnight Aug. 14.
On the other hand, said Jackson, the trustees run the real risk of exposure to liability for violating their fiduciary duty if they are forced to make a decision before the conflict between their obligations under ERISA and their obligations under the trust agreements are resolved