The grand design to turn a big airline called United into a huge integrated travel company called Allegis is over. Two hotel chains (Hilton and Westin) and a vast rent-a-car network (Hertz) were to be supplied with customers arriving on United Airlines flights. This was the plan conceived by Richard J. Ferris, who surprised Wall Street by resigning Monday as chairman and chief executive officer of Allegis.
As recently as Monday, Mr. Ferris seemed as though he would weather the hostile takeover storm initiated by United's own pilots and backed by Coniston Partners, a New York-based investment group.
Ferris had recently countered a hostile $4.6 billion bid by the group with a bid that would have paid shareholders $60 a share, but added $3 billion in long term debt, putting the company $5.2 billion in the hole. If it had been accepted by the board and shareholders, the move would have slashed, but still salvaged, his dream of an integrated company.
That was not to happen. Ferris's masterplan has been a dud on Wall Street since he engineered the $588 million purchase of Hertz in 1985. The idea also irked institutional investors who had watched earnings and the stock price languish - despite a resurgence in profits elsewhere in the airline industry. Thus, there was little sympathy for Ferris as he struggled to keep the plan intact.
In a special meeting Monday, Allegis's board of directors elected Frank Olson as chairman and chief executive officer. Mr. Olson had been chairman of the company's Hertz car rental unit.
Charles Luce, a senior director of Allegis, asked the board to ``reconsider all existing proposals for restructuring Allegis.'' He said the board ``presumes that such a plan will include the sale of the Hertz, Westin, and Hilton International hotels, and a recapitalization of United Airlines.''
``The other side has won its argument that the value of the company was higher than the stock market value,'' says Mark Klee, an analyst with the National Aviation and Technology Corporation.
Mr. Klee and other analysts say that while the board reviews its options, it is still unclear what form the company will eventually take. Options include selling off most of the company's pieces, and it is concievable the United Airlines unit might remain a publicly held company partly controlled by its pilots.
In the end, it may have even been the purely symbolic move to change the company's name from United Airlines, to Allegis, that became the spark that ignited the powder keg.
Ferris's troubles began in earnest when his own pilots, the United branch of the Air Line Pilots Association, put the company into play as a takeover prospect. The union, whose members liked the emerging conglomerate plan even less than the Wall Street analysts, was still embittered following a 29-day strike over wages in June 1985. They decided in early April to make their own offer.
``It's our belief that they've been buying hotels so they can have more rooms for dissatisfied passengers,'' F.C. Dubinsky told the Wall Street Journal in April. It was Mr. Dubinsky who led the takeover attempt and organized the secret meetings to elicit support from pilots.
Initially, however, the $2.3 billion (far below United's actual value) was a joke. Still, the pilots became a focal point and catalyst, and an impatient Wall Street was ready to pounce.
``We still can't tell who wants what in this. It's a mess,'' says Richard A. Billotti, a bond analyst with L.F. Rothschild, Unterberg & Towbin.
``There are all kinds of possibilities and combinations. United is going to continue to exist, but what form it will take isn't clear at all.''
In addition to all the financial options Allegis's board has to to consider, Mr. Luce said it will be recommended to Allegis shareholders that the corporation's name be changed back to United Airlines Inc.