Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : John, Mike & Tom's Wild World of Stocks -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (2609)	11/15/2001 1:36:16 PM
From: John Pitera	Respond to of 2850

CAL-- CAL, ENE, CPQ all hitting the wall. something for the archives CAL--Risky Deals and Insider Sales Precede Crisis September 21, 2001 HY did Continental Airlines (news/quote) fail to pay its bills so soon after the World Trade Center attack? The answer lies in the two men who dominated Continental Airlines in recent years, David Bonderman and Gordon M. Bethune. Mr. Bonderman, the controlling shareholder until 1998 and still a director, wanted money, and he got it, without waiting to find out if laws were being broken. Mr. Bethune, the airline's chief executive, wanted power to run the airline as he saw fit, and he got it by spending money that Continental now needs. Two related deals deserve attention. In 1998, Mr. Bonderman agreed to sell much of his controlling stake to Northwest Airlines (news/quote), which gained a strong alliance with Continental and the power to keep it from merging with a competitor. The parties completed the deal despite a Justice Department lawsuit charging antitrust infractions. Mr. Bonderman got hundreds of millions in cash and Northwest stock. Mr. Bethune kept his job, which he had stood to lose if Continental was bought by Delta Air Lines (news/quote). Late last year, Continental and Northwest cut a deal to settle the antitrust suit. Continental paid $450 million, far above market value, for Northwest's stock, in an arrangement that smacked of greenmail. Mr. Bonderman got a windfall of $10 million and additional Continental shares. Mr. Bethune no longer had to deal with quarrelsome Northwest executives and had undisputed power at Continental. Continental still had $1 billion in cash, but its annual report contained a hint that the airline might not be well prepared for financial headwinds. "A significant amount of Continental's assets are encumbered," it said. Mr. Bonderman decided this summer to cash out of most of his remaining Continental investment. In June and July he protected almost 900,000 shares by entering into options agreements that assured he would get at least $43 a share but could get more if the share price held up. In August, he started selling outright, unloading 453,260 shares for an average price of $43.87. All told, this summer Mr. Bonderman arranged to get $59 million for stock now worth $19 million. Of course he had no inkling of the World Trade Center attack, but he certainly understood Continental's finances and knew that a slowing economy was already hurting the airline industry. He declined to be interviewed yesterday. This week Continental failed to make required payments on two debt issues, although it has grace periods before it goes into default. It thus became the first carrier to fail to pay its bills. Its stock fell to $13.95. Jeff Misner, the airline's senior vice president for finance, calls criticism unfair. Continental will pay the bills before the grace periods expire, he said yesterday. "We were doing just fine" before the attack, he added, and are "still managing the finances of this company very well." The company has no regrets about the Northwest deal. Congress is debating an airline bailout, some parts of which are reasonable. The government should take over, and pay for, airport security. The airlines should not be liable for claims from victims other than passengers. But loan guarantees should be assessed company by company. Perhaps Mr. Bonderman, who made a fortune from Continental, should join in its bailout. And Congress should ask whether a board that defied a government antitrust suit — and then used needed cash to pay greenmail — is fit to run a government-supported airline.