From outward appearances, the prospects looked bleak several weeks ago for the hedge fund-led proxy fight to succeed at United but the dissidents had the ear of other big shareholders and the United board. It now appears as though the dissidents, including airline and online travel veterans, accomplished a whole lot.
Oscar Munoz, who became United Airlines president and CEO in November 2015 and had an agreement to also become chairman in 2017, would have to wait at least until 2018 to add the title now that the airline reached a compromise with dissident stockholders and will name former Air Canada CEO Robert Milton as chairman.
Kicking down the road the issue of Munoz consolidating both the CEO and chairman’s titles, even in 2018 Munoz would have to win the board’s approval to head it up.
The fast-moving resume changes and board lineup came in a compromise with Altimeter Capital Management and PAR Capital Management, which together own 7.2 percent of United equity, and sought to place six new directors on United’s board and to replace United chairman Henry Meyer III.
United announced today that Meyer will leave the board, as will directors John Walker and Charles Yamarone. Former Orbitz CEO Barney Harford along with PAR managing partner Edward Shapiro will join join the United board, as will an additional mutually agreed upon independent director within six months.
Never Judge A Book By Its Cover
In the weeks following Altimeter and PAR’s announcement in early March that they would wage a proxy fight to get six board seats, including one for former Continental CEO Gordon Bethune, from outward appearances the dissidents’ chance for success looked bleak.
United’s unions in public statements were lining up against the dissidents, charging that they were trying to take over the United board and were acting like corporate raiders, seeking to compromise United’s potential turnaround for short-term financial gain.
And United’s CFO and other critics alleged that the proxy fight was ill-timed, coming just a few months after Munoz began to implement reforms, was waylaid by a heart attack and had just returned to full-time duties.
If only the dissidents had started their proxy fight six months earlier, before Munoz’s hiring and when then-United CEO Jeff Smisek was still running the airline.
The dissidents countered that they were supportive of Munoz as CEO and Bethune even consulted with him in the days after Munoz was appointed CEO in November. The dissidents stated that they were long-term investors in United, and sought an experienced chairman with airline experience to enhance the possibility that Munoz and United would succeed and reverse the airline’s disastrous financial and operational performance over the last few years.
Munoz had been a United board member for several years but had no airline operational or CEO experience.
However, It became clear from press reports in the last couple of weeks that a compromise was in the works and that the dissidents had the ear of the board and other big shareholders despite opposition from the unions and United’s public statements.
What Did the Dissidents Win?
Even before the proxy fighters went public with their demands in early March, they were in talks with United, and this spurred United as a hedge against their efforts to add three independent board members, including some with airline experience such as new-chairman designee Milton, former CEO of Air Canada, and James Whitehurst, ex-COO of Delta Air Lines.
The dissidents had charged that the United board was stacked with cronies who wouldn’t know PRASM (passenger revenue per available seat mile) from Pringles.
In an appearance today on CNBC, Bethune said Munoz had been “left alone because the board itself had no airline experience,” and that void has been filled with the appointment of Milton as chairman, and other appointments.
Going forward, with the newly constituted board and Munoz as CEO “the right metrics will be measured and the right outcomes will occur,” Bethune said.
Altimeter and PAR managed in the compromise announced today to get two seats on the board in adding Harford and Shapiro as directors, and a third independent director agreeable to the dissidents and the existing board will be added within six months.
Harford brings online travel and public-company management experience to the board, and Shapiro adds financial, in-flight entertainment and airline board expertise. Shapiro is chairman of Global Eagle Entertainment and has served on the boards of AmericaWest and US Airways.
Chairman designee Milton wouldn’t have been on the board without pressure from the dissidents, let alone be named board chairman.
Corporate governance activists generally never want to see a CEO hold the chairman’s title, too, and the question of Munoz potentially getting the additional role as board chairman, which had been negotiated late last year, has been delayed from 2017 to 2018 under the compromise.
Under Munoz’s newly amended employment agreement, the appointment of Milton as non-executive chairman would not be a “good reason” to block “the Company’s expectation that Mr. Munoz will be appointed Chairman of the Board at the Company’s 2018 annual meeting of stockholders…” according to a United Securities and Exchange Commission filing.
But you know what happens with assumptions and “expectations:” The board would have to vote affirmatively to place Munoz in the chairman’s slot two years from now. A lot can — and will — happen in the interim.
‘Oscar’s’ note to Employees
In a note to employees about the board changes, “Oscar” told them: “Together, these moves put the proxy contest behind us and represent a new day for United’s Board. And as we continue to move full speed ahead in running a great airline, our focus on taking care of each other and our customers has never been more important and our future has never looked more exciting.”
See the full text of the note below:
As we accelerate our path forward, I am motivated by the positive momentum I am seeing across the airline. In fact, just this past Saturday our nearly 30,000 IAM-represented employees voted overwhelmingly to ratify seven new contracts. These new contracts are well deserved, and I assure you that my highest priority is getting contracts like these done with the AFA and IBT for our flight attendants and technicians, as well.
To guide and bolster United’s continued momentum, we have also been making meaningful changes to United’s Board of Directors. This includes last month’s appointment of three new world class independent directors that collectively added substantial aviation, technology and financial leadership to the Board, including 30 years of combined airline experience.
Today, we strengthened our Board even further with the announcement that Robert Milton, who recently joined United’s Board, will become Non-Executive Chairman following our Annual Meeting later this year. Robert is the former Chairman and CEO of ACE Aviation Holdings Inc., and previously served as Chairman, President and CEO of Air Canada. Robert is an experienced aviation executive and an excellent choice to lead our Board. He will succeed Henry Meyer who has decided to retire and not stand for re-election at the 2016 Annual Meeting. I am grateful to Henry for his dedicated Board service and all he has done for our company over the years.
I also want to share the good news that we have reached an agreement with Altimeter Capital Management, LP and PAR Capital Management, Inc., the two shareholders who announced last month their intention to run a proxy contest for six board seats. Under the agreement, we have added two new directors to our Board, both of whom we think will bring a great deal of value, and we will add a third mutually agreed independent director within the next six months.
Together, these moves put the proxy contest behind us and represent a new day for United’s Board. And as we continue to move full speed ahead in running a great airline, our focus on taking care of each other and our customers has never been more important and our future has never looked more exciting.
Thank you for all that you are doing and I look forward to seeing you around the system. Fly safe and fly friendly.
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Photo Credit: United CEO Oscar Munoz has the backing of the dissident shareholders named to the United board but they weren't anxious for him to become chairman, too. United Airlines
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