The corporate version of that story unfolded in Houston earlier this month when an investor group led by controversial moneyman Charles Hurwitz made a $350 million bid for Continental Airlines, the nation’s fifth largest carrier. The overture came 23 months after corporate raider and former Continental chief executive Frank Lorenzo parted ways with Continental; the airline filed for bankruptcy protection in December 1990. If the buyout bid is successful, it could make Continental Airlines, which lost $340 million last year, the first carrier of the decade to survive Chapter 11 proceedings. But Continental employees say they’ve been jilted once too often. They worry that Hurwitz’s long-term flight plan is to strip the Houston company of its assets. “We wonder if his intentions are honorable,” says Rene L. Minjares, interim head of the Independent Association of Continental Pilots, which is seeking union certification to represent Continental pilots.
Why would Hurwitz want to acquire an ailing airline-in an industry that is bleeding dollars? Analysts say the answer lies in the sweet deal he cut. Under its terms, Hurwitz’s company, Maxxam Inc., and other investors would receive a 72 percent stake in the carrier once it emerges from bankruptcy. The Maxxam-led group would contribute only $25 million in equity, with the remainder coming from notes secured by Continental’s assets. Thus, if the airline failed, Maxxam would be able to recover a significant portion of its investment. And, even if another buyer steps forward with a bid of at least $400 million, the Hurwitz group would still receive as much as $12 million for its efforts. But there are hurdles: Continental must resolve a dispute with the Pension Benefit Guaranty Corp. regarding $700 million the agency claims Continental owes for underfunded pension liabilities from failed sister company Eastern Air Lines. Also, the bankruptcy court must approve the deal; a go-ahead on the initial agreement could come as early as this week, and be finalized by the yearend. Says Duff & Phelps’s analyst Sean St. Clair: “There is no downside” for Hurwitz.
Ironically, the Continental deal may be one of the least risky the 52-year-old Hurwitz has ever cut. Maxxam, with 1991 sales of $2.2 billion, was built largely on risky “junk” bonds financed through Drexel Burnham Lambert. His empire includes Kaiser Aluminum Corp. and real-estate operations across the country. In 1986, he bought Pacific Lumber Co. To service his debt, he began mowing down California’s coastal redwoods at more than double the company’s historic rate.
His reputation as a ruthless raider has won him few friends. Environmentalists, who have dubbed him “the redwood raider,” have hit Pacific Lumber with at least half a dozen lawsuits; Frank Sinatra once took out a newspaper ad denouncing a Hurwitz development project in the California mountains. Hurwitz’s name has also been linked to the S&L debacle. He was the chairman of United Financial Group shortly before its subsidiary United Savings Association of Texas collapsed in 1988. The Federal Deposit Insurance Corporation appears to be tightening the screws to collect a $534 million claim against United Financial. A spokesman for Maxxam says neither Hurwitz, who declined to be interviewed, nor his companies have committed any wrongdoing. And he defends the Continental pact as a good-faith deal. “Our intent with Continental is to make an investment,” he says. In the end, Continental employees may have no choice but to trust Hurwitz. So far, he is their only ring-bearing suitor.
Hurwitz’s MCO Holdings and Federated Development buy Simplicity Pattern for $48 million; later changes name to Maxxam.
Maxxam acquires Pacific Lumber for $900 million in a bruising takeover fight, half financed by junk bonds.
Maxxam acquires KaiserTech, the parent of Kaiser Aluminum, for about $930 million.
A Hurwitz investment, United Savings Association of Texas, fails, costing taxpayers roughly $2 billion.
Maxxam bids $350 million for a controlling interest in Continental Airlines Holdings.
