Davis Offers $4 Billion for UAL; Bid War Seen : Stock Soars $46.25 in Wake of L.A. Billionaire Raider’s Third Effort to Purchase an Airline

Los Angeles billionaire Marvin Davis, who recently lost a battle for control of Northwest Airlines, has offered to pay more than $4 billion for UAL Corp., the parent of United Airlines.

Davis’ bid of more than $200 a share is expected to trigger a bidding war for United, the nation’s second-largest airline behind American Airlines.

UAL, describing Davis’ proposal as “highly conditional,” said its board will consider it at a meeting Wednesday. UAL Chairman and President Stephen M. Wolf said: “The board has not decided whether a sale of the company is in the best interests of the shareholders and other constituencies.”

No Exact Figure

A spokesman for Davis declined to comment Monday, and neither side would say exactly how much he had offered for the airline. However, analysts and other sources close to United confirmed that the offer was for significantly more than $200 a share.

The overture from Davis comes at a difficult time for United. The airline’s pilots recently said they might make their own bid to purchase the airline, and its flight attendants have voted to strike if contract negotiations do not show progress.

Moreover, the airline has experienced two fatal crashes in six months, including the DC-10 accident in Sioux City, Iowa, on July 19 that killed more than 100 passengers. Nine passengers died in the other incident, which occurred in February.

Its troubles aside, United has valuable assets that could make it attractive to a corporate raider. It is the second-largest U.S. carrier in the fast-growing Pacific region--Northwest is the largest--and has a strong domestic network with its major hub at Chicago’s O’Hare International Airport. It also owns most of its aircraft fleet, worth about $3 billion.

Investment analysts who follow the airline industry said Davis would have little difficulty financing a takeover. The fleet could be sold and then leased back to raise cash. United’s annual cash flow of more than $1 billion could cover additional debt, analysts said.

The airline earned a net profit of $1.12 billion on revenue of $8.98 billion last year.

Louis A. Marckesano, an analyst with the investment firm of Janney Montgomery Scott in Philadelphia, said bidding for United might push the price to $250 a share. Some other Wall Street analysts predicted that United’s stock price might go as high as $300.

UAL’s stock soared in trading Monday after the airline disclosed Davis’ bid. Its shares closed at $210.75, up $46.25 in composite trading on the New York Stock Exchange.

The bid for UAL had a spillover effect on other airline stocks, boosting the shares of Delta Air Lines Inc., AMR Corp. (parent of American Airlines), USAir Group Inc. and Southwest Airlines Co.

Airline industry analysts said the surge in UAL’s price indicated that investors expect a bidding war. Other possible bidders were said to include Texas billionaire Robert M. Bass, who is rumored to own a small stake in UAL, and Saul P. Steinberg, a New York investor and close friend of Wolf, UAL’s chairman. Steinberg owns nearly 7% of UAL.

Another possible bidder was said to be Pan Am Corp. After making an unsuccessful bid for Northwest Airlines earlier this year, Pan Am Chairman Thomas G. Plaskett said the airline would continue to look for another possible acquisition.

United Airlines is the third airline that Davis has tried to buy. He offered to buy Eastern Airlines’ Northeast shuttle earlier this year but was outbid by another billionaire, Donald Trump. Then he sparked the bidding war for Northwest Airlines in March when he offered $2.7 billion for the Eagan, Minn.-based airline. But he lost that three-month battle to another Los Angeles financier, Alfred A. Checchi.

Davis made his first fortune as a wildcatter in the Rocky Mountains in the early 1960s. He used his oil profits to invest in diverse businesses such as hotels, restaurants, golf courses and ski resorts, acquiring a reputation as a corporate raider along the way. In 1981, he bought the 20th Century Fox motion picture company but sold it in stages to media mogul Rupert Murdoch four years later.

Davis’ wealth has been estimated at $1.6 billion, and the Northwest transaction--in which he sold the stock he had accumulated--left him $45 million richer.

As was the case with his bid for Northwest, the 63-year-old Davis has not always acquired his corporate targets. He has lost bids for CBS Inc. and Lorimar Telepictures Corp. in the past and has a reputation of being careful not to overpay for a company.

Previous Takeover Threat

For UAL, this is the second takeover threat in two years. In 1987, takeover pressure from the New York investment firm of Coniston Partners forced the resignation of Chairman Richard Ferris and the sale of the company’s hotels and rental car business. The company also sold half of its reservation system to a consortium of foreign airlines and bought back 67% of its stock.

It is not known how UAL will react to Davis’ bid. Wolf is viewed as a dispassionate executive who considers shareholders’ interests. As chairman of Republic Airlines, he negotiated its sale to Northwest Airlines in 1986 because he thought that Republic was not strong enough to survive on its own.

Later, as head of Los Angeles-based Tiger International, he won hefty concessions from its labor groups and was able to restore profits at the company’s troubled air cargo unit, Flying Tiger Line. He left Tiger in December, 1987, one year before it was sold to Federal Express.

While at Republic and Tiger, Wolf developed a reputation as an executive able to get along with labor under difficult situations. That reputation is being sorely tested at United, however. Contract negotiations with the pilots and flight attendants have been stalled, and Wolf’s relationship with those unions is strained.

On Monday, the United pilots union said that, as facts about Davis’ offer “become known, we intend to carefully study the matter in consultation with our financial and legal advisers.” A spokesman for the union said the group would favor an employee buyout of the airline company.

Airline industry analysts said UAL might issue a special dividend to shareholders to ward off a takeover or engineer its own buyout with participation by management and employees. It was thought that Steinberg, the New York investor, might help Wolf finance a buyout if he wins support from labor. Steinberg, formerly a major shareholder in Tiger International, was instrumental in hiring Wolf at the Los Angeles cargo carrier.

“It is fair to say their relationship is close,” a lawyer who knows both men said. “They have mutual respect for each other’s talents.”

Airline industry analysts said that, whether Davis’ bid succeeds or not, it seems unlikely that United will exist in its present form a year from now. “I think clearly we’ll see a change,” said Robert Decker, an airline analyst in Chicago for the investment firm of Duff & Phelps.

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