Friday, May 30, 2014

How Tom Horton Shaped American Airlines: As Chairman Prepares to Leave the Airline, He Looks Back on Merger That Enriched Shareholders

The Wall Street Journal

By Susan Carey


Updated May 30, 2014 5:04 p.m. ET

 Tom Horton, chairman of American Airlines Group Inc., wasn't always a cheerleader for the merger that turned his company into the country's biggest carrier.

But as he prepares to leave the airline where he has worked for a quarter of a century, he can claim partial credit for a deal that achieved a rare feat for bankrupt companies: enriching shareholders.

Equity holders in AMR Corp., the former American parent that merged with US Airways to come out of bankruptcy in December, retained about 40% of the combined company's stock, an extremely rare outcome in Chapter 11. Creditors also were fully repaid, with interest. American's stock has risen more than 70% in the past five months, giving the company a market value of nearly $28.9 billion.

"I was pretty agnostic about whether to do a deal or not," Mr. Horton recalled in an interview ahead of a board meeting on Tuesday after which he will hand over the chairman title and depart American. But he said he is pleased by the outcome: "I think we're off to a good start here."

Mr. Horton became chief executive of AMR the day it filed for bankruptcy-court protection in 2011. The terms of the $17 billion merger that provided its exit from Chapter 11 required him to cede the CEO slot to Doug Parker, the former CEO of US Airways and Mr. Horton's office mate in the American finance department in the mid-1980s when they were both fresh out of business school.

The deal gave Mr. Horton a temporary appointment as nonexecutive chairman. He said he has worked with Mr. Parker in the five months since the merger to bring the new board up to speed and help the company move ahead on integration. Tuesday's meeting comes a day before American has its first annual meeting as a new company.

"It is obviously a transitional role," said the 53-year-old executive, who added that he hasn't decided what to do next. A lanky marathoner and avid fisherman, Mr. Horton will have a bit more time for those pursuits and, in fact, he recently fished for tarpon off Florida's Gulf Coast.

Free time could be an adjustment, but Mr. Horton can take comfort in his severance: $12.7 million in cash and fully vested American shares worth $6.8 million, plus lifetime travel benefits. He also holds another $8.4 million of American shares, based on the current price.

The two airlines had proposed a severance plan for him worth about $20 million, but the U.S. Bankruptcy Court judge overseeing the AMR case said the payment wasn't allowed, leaving the merged company the option of paying Mr. Horton after the fact. A spokesman for Mr. Horton confirmed the current severance plan.

Getting to the merger was a tough road for Mr. Horton. He resisted US Airways' overtures for most of a year. He said he needed time to judge the value of an independent American stepping out of bankruptcy before entertaining other scenarios. But American's creditors and unions quickly got behind US Airways and he was forced to take a look.

"I felt in the fullness of time, in or after the restructuring, American was going to do a deal with US Airways or somebody else," he said. "But we had to make sure our own house was in order." By late 2012, it was obvious that the merger would create even more value. The companies formally announced the deal in February of last year, but the closing was delayed by a Justice Department suit to block it. A settlement was reached last November.

Mr. Horton joined AMR in 1985, rising to chief financial officer in 2000. He left the company two years later after engineering American's takeover of Trans World Airlines. He took the top finance job at AT&T Corp, where he got an even bigger taste of M&A, as AT&T was acquired by SBC Communications Inc. He rejoined American in 2006, becoming president in 2010. Since 2008, he also has been a director at Qualcomm Inc.,  a maker of wireless communications gear.

Jason Hanold, CEO of boutique executive-search firm Hanold Associates, said Mr. Horton is likely to have many options after American, given his relative youth, financial background, and experience with other industries and bankruptcy restructuring. Private equity, for instance, would enable Mr. Horton to use his knowledge to work on turnarounds and deals, said Mr. Hanold, who isn't involved with Mr. Horton or American.

Mr. Horton said he will start evaluating new opportunities only after he leaves American, and will "take it an inch at a time." Both joining another public company and entering private equity are possibilities he doesn't rule out, he said. His next move, he said, is to take a family vacation.

Mr. Horton expressed pride in perhaps his most visible legacy at the new American: the new paint job—a stylized red, white and blue flag draping each aircraft's tail. He said the competition was down to two and he chose the one he preferred. When Mr. Parker early this year allowed the combined workforce to vote on whether to keep the new tail or return to American's old "AA" logo, a majority sided with Mr. Horton. "I love it," he said.

Source:  http://online.wsj.com

No comments:

Post a Comment