The board of directors of UAL Corp. plans to meet today to consider what might be called "the incredible shrinking offer" for United Airlines.
Gerald Greenwald, chief executive officer of United Employee Acquisition Corp., on Sunday acknowledged the failure of attempts to line up $2 billion to finance the employees' bid for the airline. Instead, the employee group is expected to present a new, lower offer today for the airline containing as little as $60 to $80 a share in cash.
The proposal will present the UAL board with two unattractive alternatives, analysts say. If it rejects the offer -- a shadow of the $201-a-share employee bid that the board originally agreed to -- UAL may find itself in conflict with its unions.
If the board accepts the offer, it faces the wrath of shareholders disappointed in the price and a possible rash of shareholder lawsuits.
In another complication, Coniston Partners, the company's largest shareholder, has threatened to seek the removal of UAL's directors if they reject what the investment company considers a realistic offer.
Nonetheless, some airline industry analysts said yesterday that they expect the board to reject the offer. UAL's stock dropped $11.50 yesterday to close at $91.25.
"I don't think the 'deal' is likely to be accepted," said Edward Starkman, an analyst with PaineWebber Inc. "It's not as if you reach a certain day and United Airlines expires like cotton candy. This is a valuable company.
"This is not the environment to sell an airline in," he added. "That's economics 101. You don't sell your company at the bottom of the market."
Just how far the market for airlines has fallen is apparent in the history of the takeover offers for United.
A year ago, United's unions and Chairman Stephen M. Wolf were seeking financing for a $300-a-share bid. They failed and the bid collapsed, taking the market with it on Oct. 13, 1989.
On April 6 of this year, the board voted to accept the $201-a-share offer, which would have included $155 a share in cash. By August, however, it was clear that the unions were having a tough time finding financing at that price. The board extended the deadline for doing so until today, blaming the difficulties on turmoil in the oil markets for slowing the progress of financing efforts.
More recently, the employee buyout group has been seeking funding for an offer that has been reported to be approximately $165 to $175 a share, with approximately $150 a share in cash, but Greenwald signaled Sunday that that, too, had run into a financing wall.
"The doubling of oil prices since Iraq's invasion of Kuwait and the extraordinarily tight credit market conditions which have existed since then have made it impossible to satisfactorily syndicate the proposed bank loan," he said.
Greenwald said the employee group will put an offer in front of the board today that is "substantially in excess" of the current market price of UAL stock.
Instead of seeking financing for the cash portion of the offer from banks, he said, the group expects to raise the funds from aircraft manufacturers, sale/lease-backs and other equipment financing, employee investments and cash on hand.