Battle Looms As United Investors Nominate Six For Board

March 8, 2016

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Two investment funds with significant stakes in United Airlines have nominated six directors for the airline's board, increasing the chances of a proxy fight as the company digs in to defend against the attack.

PAR Capital Management and Altimeter Capital Management, which together own 7.1 percent of United, said they were disappointed with its "poor performance and bad decisions over the last several years."

Chief executive Oscar Munoz urged employees to stay focused on running the airline and that they should avoid being distracted by the board changes sought by the investment funds.

The Boston-based asset managers have experience in investing in travel businesses but no track record of starting the kind of proxy battle typical of so-called activist investors.

Former Continental Airlines chief executive Gordon Bethune led the dissidents' slate, which includes Altimeter founder Brad Gerstner and former Orbitz CEO Barney Harford, the investors said in a statement. Gerstner was on the Orbitz board when Harford led that company.

Shareholders have until Saturday to submit board nominations for the annual meeting, which is expected to take place in June.

United was quick to respond, saying it had tried to work with the two investors to discuss the nominations and even offered to amend its bylaws to extend the deadline. The company said the investors were "uninterested" in an agreement.

"INEFFECTIVE 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 Haskett.

The 2010 merger of United and Continental created the second-largest US airline by capacity. But the company has suffered from a string of issues.

Software problems plagued its reservation system for several years. Employee morale remained low, and United failed until recently to substantially lift its on-time performance.

Former United chief executive 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 comes two days after the airline said CEO Oscar Munoz would return to the company on March 14 after being on medical leave since October, when he suffered a heart attack.

"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.

United said on Monday that it had added three independent directors to its board, increasing the size to 15. The company said some directors would step down but declined to say which ones or how many.

The asset managers have not disclosed their view of Munoz. The board changes, together with an increased stock buyback plan, were not enough to persuade the funds to back down.

"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.

(Reuters)