(Recasts throughout; adds comments on new chairman's record at
Air Canada, background on hedge funds.)
By Jeffrey Dastin and Michael Flaherty
April 20 (Reuters) - The agreement by United Continental
Holdings Inc UAL.N to install airline industry veteran Robert
Milton as non-executive chairman represents a partial victory
for two first-time activist hedge funds, and puts an expert at
turnarounds in the seat next to Chief Executive Oscar Munoz as
he tries to fix United's operational problems.
People familiar with Milton's record as chief executive of
Air Canada pointed Wednesday both to his success restructuring
the once bankrupt carrier, and his battles with labor unions
there.
"He wanted to make as much money for shareholders at the
expense of the workers," said Carlos DaCosta, the Canadian
airline coordinator for the International Association of
Machinists and Aerospace Workers (IAM).
Henri Courpron, chairman at Plane View Partners LLC, said he
expects Milton would work with Munoz to improve operations and
narrow the gaps in performance with larger rivals Delta Air
Lines Inc DAL.N and American Airlines Group Inc AAL.O .
"I do not expect Robert Milton to interfere with the CEO,
but rather use his insight and experience to support and
encourage Munoz to re-evaluate the overall post-merger strategy
for the airline as it appears to be lagging its peers on several
fronts," Courpron said.
Company officials said the agreement does not mean a sharp
change in strategy for the No. 3 U.S. airline by traffic. Milton
joined United's board in March along with former Delta Chief
Operating Officer James Whitehurst. Milton will take over as
non-executive chairman when Henry Meyer steps aside at the
company's June annual meeting, the company said.
Activists PAR Capital Management Inc and Altimeter Capital
Management LP, which together own 7.1 percent of United, had
pushed for Meyer's replacement, saying United needed more
airline expertise on the board to guide Munoz.
The settlement "clears the way (for United) to control their
own destiny and improve the operation," said Janus Capital Group
analyst Kristopher Kelley.
Munoz, who took the top job at United in September after
being president of railroad operator CSX Corp CSX.O , has made
a point of improving labor relations. He won support from unions
during the clash with the hedge funds last month. As part of the
deal with the hedge funds, Munoz agreed to postpone his own
appointment as chairman by one year to 2018, United said.
Some 30,000 workers represented by the IAM secured a new
contract on Saturday with a 30-percent pay hike. The IAM's U.S.
airline division said it had no reason to believe relations with
United would not continue to improve, and it hopes the new
appointments do not poison the relationship.
PAR and Altimeter disclosed their effort to overhaul
United's board in March, after the airline refused to agree to
name former Continental Airlines chief executive Gordon Bethune
as chairman.
PARTIAL VICTORY
The funds dropped the push to install Bethune on the board,
and did not secure seats for the full slate of six new directors
it proposed for the United board. As part of the settlement, PAR
managing partner Edward Shapiro and Barney Harford, former CEO
of online travel services company Orbitz Worldwide Inc OWW.N ,
have immediately joined the board. Only Harford was on the
original slate of directors.
PAR and Altimeter have focused on the airline industry, but
had never launched an activist campaign before.
PAR and Altimeter are part of a growing collection of
investors who, for the first time, are publicly challenging a
portfolio company's board or management team for
underperformance, taking a page from the playbook of pure play
activist hedge fund managers who make their money by agitating
for changes at companies.
United said it would make another appointment this year,
meaning eight of its 15 directors will have joined no earlier
than March. Meyer and two other directors will not
stand for re-election in June.
The activist shareholder trend has swept Corporate America
during the last few years, with a record 507 campaigns aimed at
U.S. companies last year, according to Thomson Reuters data.