1 UAL Corp. 's board quashed any prospects for an immediate revival of a labor-management buy-out, saying United Airlines' parent should remain independent for now.
2 As a result, UAL's chairman, Stephen M. Wolf, pulled out of the buy-out effort to focus on running the company.
3 The two developments put the acquisition attempt back to square one and leaves the airline with an array of unresolved matters, including an unsettled labor situation and a management scrambling to restore its damaged credibility.
4 The effort to create the nation's largest employee-owned company began unraveling Oct. 13 when the labor-management group was unable to obtain financing for its $300-a-share, $6.79 billion offer.
5 Just last week it suffered another major setback when British Airways PLC, the largest equity investor in the labor-management bid, withdrew its support.
6 Takeover stock traders, focusing on the company's intention to stay independent, took the announcement as bad news.
7 UAL, which had risen $9.875 to $178.375 in composite trading on the New York Stock Exchange on reports of a new bid being prepared by the group, reversed course and plummeted in off-exchange trading after the 5:09 p.m. EDT announcement.
8 Among the first trades reported by the securities firm of Jefferies & Co., which makes a market in UAL after the exchange is closed, were 10,000 shares at $170, 6,000 shares at $162, 2,500 at $162, and 10,000 at $158.
9 The rebound in UAL stock during regular trading hours Monday was its first daily gain after six consecutive losses left the price 41% below its level before Oct. 13, the day the group announced the bank financing couldn't be obtained for the original deal.
10 Twelve of UAL's outside directors met at a five-hour meeting yesterday in Chicago to consider an informal proposal from the buy-out group for a revised bid.
11 But the board said it wasn't interested for now.
12 That proposal, valued at between $225 and $240 a share, would have transferred majority ownership to employees while leaving some stock in public hands.
13 The buy-out group had no firm financing for the plan.
14 And, with no other offers on the table, the board apparently felt no pressure to act on it.
15 The directors signaled, however, that they would be willing to consider future offers or take some other action to maximize shareholder value, saying they would continue to explore 'all strategic and financial alternatives.'
16 But it was clear that for the time being, the board wants the company to return to normalcy.
17 The board said it concluded that 'the welfare of the company, its shareholders, its employees and the broader public . . . can best be enhanced by continued development of UAL as a strong, viable, independent company.'
18 Mr. Wolf urged all employees to 'now turn their full attention' to operating the airline.
19 He also vowed to 'make every effort to nurture . . . a constructive new relationship that has been forged with participating employee groups.'
20 But Mr. Wolf faces a monumental task in pulling the company back together again.
21 Labor problems top the list.
22 For a brief time, the buy-out effort seemed to solve his problems with United's pilot union.
23 In return for an ownership stake in the company, the pilots were willing to agree to a seven-year contract that included a no-strike clause and significant wage concessions and productivity gains the union previously resisted.
24 That contract was tied to the success of the buy-out.
25 As a 'good-will measure,' the pilots had been working four extra hours a month and had agreed to fly UAL's two new Boeing 747-400 aircraft.
26 It's uncertain if the pilots will continue to do so without a contract settlement.
27 The union said late last night that it is still committed to majority employee ownership and that the labor disputes that faced the company prior to the buy-out effort 'still need to be addressed.'
28 The buy-out effort also worsened already-strained relations between United's pilot and machinist unions.
29 The machinists' criticisms of the labor-management bid and their threats of a strike unless they received substantial wage increases this year helped cool banks' interest in financing the transaction.
30 The machinists previously had shown themselves to be an ally to Mr. Wolf, but he lost much of his credibility with that group when he teamed up with the pilot union.
31 The machinists criticized the terms Mr. Wolf and management received in the buy-out.
32 They paid $15 million for a 1% stake and received an additional 9% of the company at no additional cost.
33 His credibility is also on the line in the investment community.
34 Until the collapse of this bid, Mr. Wolf was regarded as one of the nation's savviest airline executives after engineering turnarounds of Tiger International Inc. and Republic Airlines.
35 But he and his chief financial officer, John Pope, sowed some of the seeds for the deal's failure by insisting banks accept low financing fees and interest rates, while they invested in the transaction only a small fraction of the $114.3 million they stood to gain from sale of their UAL stock and options.
36 The board's actions leave takeover stock traders nursing some $700 million in losses and eager to respond to anyone who might make a new offer.
37 It also inevitably leaves a residue of shareholder lawsuits.
38 Arbitragers said they were disappointed the company didn't announce some recapitalization or other plan to maximize value.
39 One takeover expert noted that arbitragers could force a recapitalization through the written consent process under which holders may oust the board by a majority vote.
40 The machinists union has suggested it may propose a recapitalization that includes a special dividend for holders and a minority ownership stake for employees.
41 Los Angeles investor Marvin Davis, whose $240-a-share offer for UAL in August triggered a bidding war, says he remains interested in the airline.
42 However, he is restricted from making certain hostile moves by an agreement he signed to obtain confidential UAL data.
43 Essentially, he can't make any hostile moves unless he makes a tender offer at least $300 a share.

The two developments put the acquisition attempt back to square one and leaves the airline with an array of unresolved matters , including an unsettled labor situation and a management scrambling to restore its damaged credibility .
unsettled labor situation
What is the unsettled labor situation?