United Settles Board Fight as Focus Shifts to Turnaround

  • Former Air Canada CEO will replace Henry Meyer as board head
  • PAR, Altimeter win director seats after activist campaign

United Continental Holdings Inc. named former Air Canada Chief Executive Officer Robert Milton as chairman and settled a dispute over board control that erupted in the midst of the airline’s turnaround efforts.

Milton, 55, will replace Henry Meyer III, a retired banker who took office in September after the ouster of Jeff Smisek, the company said Wednesday in a statement. Under the settlement, United will give two board seats to shareholders Altimeter Capital Management and PAR Capital Management Inc., which had called on the carrier to appoint a chairman with airline experience.

Robert Milton
Robert Milton
Photographer: Norm Betts/Bloomberg

The pact allows United to end a boardroom tussle that threatened to overshadow CEO Oscar Munoz’s efforts to engineer a resurgence at the third-largest U.S. carrier, whose stock returns and operational performance have largely lagged those of industry rivals since a 2010 merger with Continental Airlines. The deal also addresses criticism by the activists that United’s board had provided ineffective oversight and lacked airline expertise.

“This agreement removes an overhang on the shares and enables management to continue to focus on improving its operations, including on-time performance,” Helane Becker, an analyst at Cowen & Co., said in a note to clients.

United advanced 0.9 percent to $58.60 at the close of trading in New York. Adjusted earnings fell to $1.23 a share in the first quarter, the airline said in a statement Wednesday. That topped the $1.18 average of 15 estimates compiled by Bloomberg. Sales declined 4.8 percent to $8.2 billion, matching analysts’ expectations.

‘Positive Momentum’

While Munoz had been expected to become board chairman next year, he will delay taking on that additional role until 2018, the airline said. Charles Yamarone and John Walker will retire from the board this year, along with Meyer.

United looks “forward to working constructively together as we build upon United’s increasing positive momentum,” Munoz said in the statement. “We appreciate the valuable input we have received from Altimeter, PAR, and other shareholders.”

The board moves will boost United’s efforts to improve operations, PAR CEO Paul Reeder said in a separate statement.

“United has great potential, and we’re confident that these meaningful board-level changes will help the company reach that potential,” he said. “We are eager to see the new board turn its attention to creating stockholder value, improving labor relations, and enhancing customer satisfaction.”

Board Renewal

Two representatives of the activists will join the board immediately: Edward Shapiro, managing partner and portfolio manager at PAR, and Barney Harford, former CEO of Orbitz Worldwide, Inc. Within six months, United will add a third independent director, to be agreed upon with the activist investors.

As of the 2016 annual meeting, and including changes that United made last month, seven of the 14 board members -- and five of the 11 independent directors -- will be recent additions, the airline said. Former Continental CEO Gordon Bethune, originally the leader of six insurgent candidates backed by PAR and Altimeter, won’t join the board.

The hedge funds, which together hold 7.2 percent of the airline’s stock, said they weren’t trying to unseat Munoz, who has made improving labor relations a top priority. United unions representing flight attendants, ground workers, pilots and flight dispatchers have all sided with the company against the activists. The mechanics, represented by the Teamsters, have stayed neutral.

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