United-Avianca Deal Becomes Target of Lawsuit by Kingsland

  • Minority holder seeks to block pact for Colombian airline
  • Filing targets German Efromovich, largest holder of carrier

Avianca Holdings SA’s chairman and controlling shareholder, German Efromovich, is forcing the Colombian airline into a potential deal with United Continental Holdings Inc. that will hurt minority investors, according to a lawsuit filed Tuesday in New York State Supreme Court.

Kingsland Holdings, the second-biggest shareholder in Avianca, is suing the Bogota-based air carrier, Efromovich and Chicago-based United, saying they secretly negotiated an $800 million loan and strategic partnership. Efromovich chose the United deal for his personal benefit and over offers from two other major international airlines that assigned a higher value to Avianca, Kingsland said. 

Those offers were made after Avianca’s board conducted a search for a partner to address its liquidity needs, according to the suit.

“The United transaction diverts the vast majority of the consideration United is paying for a partnership with Avianca –- a valuable asset that may provide United with an estimated annual profit in excess of $75 million -– to Efromovich’s financially shaky affiliates,” the lawsuit said. “He torpedoed the strategic process by clandestinely negotiating a transaction with United.”

Kingsland is controlled by the Kriete family, which combined Taca, a Central American airline, with Avianca in 2010. Kingsland holds 22 percent of the voting shares in Avianca, while Synergy, Efromovich’s holding company, holds a 78 percent voting stake.

United declined to comment because it hadn’t yet been served with the lawsuit, spokeswoman Erin Benson said late Tuesday. Avianca said it hadn’t been formally notified either. Elliott declined to comment.

Avianca’s American Depositary Receipts rose less than 1 percent to $7.76 at the close in New York. They’ve dropped 20 percent this year.

Airline Deals

Efromovich began talks with United, which purposefully remained silent, and didn’t inform the committee searching for strategic partnerships, Kingsland alleges. He also impeded the committee’s work by canceling meetings and giving contradictory accounts of his willingness to sell, according to the lawsuit.

At the end of a full day of meetings Jan. 31, Efromovich disclosed the separate talks with United for the first time to Avianca directors and Elliott Management Corp., which had provided a loan backed by Efromovich’s Avianca shares, Kingsland said in the lawsuit. He also announced that Avianca would give a 30-day exclusivity window to United and that Avianca should abandon talks with the two other bidders, according to the lawsuit.

United has promised to loan about $800 million to Efromovich’s holding company, Synergy, backed by the stakes in the Avianca and a Brazilian airline. Half of that is allocated to pay down existing debt, including some owed to Elliott. About $200 million of the loan may end up going to Avianca, Kingsland alleges.

United announced in a press release dated Jan. 31 that it was working with both Avianca Holdings and Avianca Brasil to enhance and deepen commercial and strategic ties, without mentioning terms. Oceanair Linhas Aereas, which operates as Avianca Brasil, is a separate airline controlled by Efromovich’s brother.

Efromovich has had to pledge or trade away a substantial part of the upside from the shares and would get little benefit from a deal that substantially increases Avianca’s value, the lawsuit said. He’s also made the company enter into at least 30 related-party transactions over the past two years to benefit him and his affiliated companies, including an unnecessary order with Airbus in order to induce Airbus to renegotiate Synergy’s obligations and defaults, Kingsland alleges.

— With assistance by Michael Sasso

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