PAR Capital Management Inc and Altimeter Capital Management LP,
which together own 7.1 percent of the second-largest U.S. airline,
said its "underqualified, ineffective, complacent and entrenched"
board had caused years of "inexcusable company underperformance" and
needed an overhaul.
"We believe that our conclusion is shared by many of United's
long-suffering stockholders, customers and 80,000-plus dedicated
employees," the funds said in a letter to United's board.
United has badly underperformed other U.S. airline stocks since its
2010 merger with Continental Airlines. It has suffered from a series
of computer problems and poor employee morale, and its on-time
performance and profits have lagged its peers.
Bethune is known for leading Continental through a dramatic
turnaround from 1994 until his retirement in 2004, during which the
Bethune said he was asked to help by longtime United shareholders
PAR and Altimeter, which lack a track record of starting the kind of
proxy battle typical of so-called activist investors. Saturday is
the deadline for board nominations. The annual meeting is expected
United Chief Executive Oscar Munoz warned the proposal by the
Boston-based asset managers could wrest away control of the airline,
and urged employees to keep improving United, which fared better in
late 2015 after years of underperformance.
"This situation shouldn't change your focus," he said in an email to
United's flight attendants union said the investors were "creating a
distraction at just the wrong time." United's machinists union also
voiced support for Munoz.
United Continental shares ended 2.2 percent lower at $56.34 amid a
broader sell-off in airline stocks.
Bethune, 74, said the fight was "not about Mr. Munoz."
"It's about ... having someone who actually understands the airline
business on the board," Bethune said in CNBC interview Tuesday. He
noted that the investors insisted he stand for election as United's
chairman, and that he would only stay two years, if appointed.
The proposed slate of directors also includes Altimeter founder Brad
Gerstner, former Orbitz CEO Barney Harford and former Delphi
Automotive CEO Rodney O'Neal.
United said it had tried to work with the funds and even offered to
amend its bylaws to extend the deadline for board nominations, but
they were "uninterested" in an agreement.
The two funds built stakes in United last year, and talks with the
carrier intensified in late 2015, said a person familiar with the
matter who was not authorized to discuss it publicly.
The funds did not return calls seeking comment.
[to top of second column]
SHAKING UP THE BOARD
"This situation is really all about shaking up what Altimeter/PAR
thinks is an entrenched and ineffective board," said Don Bilson,
head of event-driven research at independent research firm Gordon
United has posted relatively weak earnings, among other problems. It
lost $724 million in 2012, when rival Delta Air Lines Inc posted
more than $1 billion in profit. In 2013, United earned $539 million,
compared with Delta's $10 billion profit.
Former United CEO Jeff Smisek stepped down in September following
the disclosure of a federal investigation into the airline's
dealings with the Port Authority of New York and New Jersey.
The fund's plan to change United's board came two days after the
airline said Munoz would return on March 14 after being on medical
leave since October, when he suffered a heart attack.
On Monday, United added three independent directors to its board,
increasing the size. The company said some directors would step down
but declined to say which ones or how many.
"PAR and Altimeter have unilaterally taken this hostile action with
no concern that a proxy fight could distract the company from
executing on Oscar's strategic plan," United Non-Executive Chairman
Henry Meyer said on Tuesday.
But the investors said the board changes, together with an increased
stock buyback plan, were not enough.
"Yesterday's last-ditch effort – adding just three people to its now
15-person board – is a cynical attempt to preserve power by this
entrenched board," Gerstner said in a statement.
Other investors said the proposal would have little immediate
"Today's news doesn't affect our view of the company's credit
profile or its trajectory," said Jonathan Root, an analyst at
Moody's Investors Service, which rates United three notches below
investment grade, with a positive outlook.
(Additional reporting by Ankit Ajmera in Bengaluru)
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