Battle for the board: United shareholders plan proxy fight


By Poroma Pant

Holders of a 7.1 percent stake in United Continental Holdings Inc. – unhappy with the company’s share price – plan to launch a proxy fight to claim six seats on the airline’s board.

On Tuesday, United disclosed hedge funds PAR Capital Management Inc. and Altimeter Capital Management L.P. had advised the carrier that they intend to nominate an alternative slate of six director candidates at the airline’s annual shareholders meeting , which is scheduled for June.

The proxy plan marks the latest episode in an ongoing spat between United and the two hedge funds, and it sets the stage for a high-stakes public battle.

Airline Industry Share Price Growth Percentage

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United Airline’s under performance is reflected in the percentage of its share price in comparison to its competitors. (Poroma Pant/MEDILL)

The two sides have been sparring for some time. The two hedge funds, long term investors in United, have said publicly that they are frustrated with what they call the company’s under performance in comparison to its industry competitors.

United has experienced a series of disruptions in recent months. In September, Jeff Smisek, chief executive officer of five years, was abruptly ousted amid a federal investigation into the airline’s dealings at the Port authority of New York & New Jersey.

Board member Oscar Munoz, was swiftly zeroed in to fill the CEO role, and he promised to make improvements at the airline. Six weeks, however, he had a heart attack: Munoz is scheduled to return full time next week.

United has not been idle during Munoz’s absence. On Monday, United announced a plan to add three new independent directors to its 12 seat- board, saying the move would improve its operations and customer and employee experience. The airline said it expects to announce a fourth “in the near term.”

The move did not sit well with the two shareholders, who blasted the action as a “desperate and cynical attempt” to maintain power in a public letter to United Tuesday.

“When exactly did you determine that the Board was so inadequate as to need four new directors, all at once, and without an annual meeting or a stockholder vote?”, the letter added. It was signed by the CEO’s of both the hedge funds, Paul A. Reeder of PAR and Brad Gerstner Atimeter.

“In our view,” the letter continued, “– given United’s valuable and industry-leading strategic asset base – this long-term under performance directly results from an under qualified, ineffective, complacent, and entrenched Board.”

Gordon Bethune, former chief executive officer of Continental Airlines, is the most prominent of the six candidates that the hedge funds have nominated to serve as directors. The candidates, the two hedge funds said, are all experienced professionals who “can bring meaningful experience, objective oversight, and powerful change to United.”

United fired back “We are deeply disappointed that after United attempted to engage in a constructive, good faith dialogue with PAR & Altimeter, they have taken this hostile action with no concern that a proxy fight could distract the company from executing on Oscar’s strategic plan,”” said Non-Executive Chairman Henry L. Meyer III.

In a proxy fight, the company and the outside group that has nominated a competing slate of candidates appeal to shareholders, and the stockholder vote determines which set of nominees is seated at the board.

While results of this battle will typically be reflected during the company’s annual meeting in June, this gives both the current board and the PAR-Altimeter front plenty of time to campaign for shareholder support for their respective nominees.

The infighting didn’t seem to have much impact on investors: In mid afternoon New York Stock exchange trading Tuesday, United’s shares only changed slightly, down by 47 cents or .61 percent at $57.29.

Representatives of the two hedge funds couldn’t be reached for comment.

Two hedge-fund operators are launching a proxy fight for 6 seats on United Continental’s board. (BriYYZ/Flikr)