Oscar Munoz, the CEO of United Continental Holdings (UAL) who has been recuperating on medical leave since his heart attack last fall, won’t get to ease back into the job when he returns to work next week. Instead, he’ll have to gear up for a proxy fight that two hedge funds just launched against the airline corporation, which has already been dealing with management turmoil.
The hedge funds Altimeter Capital Management and PAR Capital Management, which together own 7.1% of the United Airlines operator, went public on Tuesday with a sharply worded letter seeking to replace as much as half of the company’s board of directors. Blaming an “underqualified” and “entrenched” board for “many years of substantial and inexcusable company underperformance” compared to rival airlines, the hedge funds nominated six new candidates for the board including Gordon Bethune, the former CEO of Continental Airlines, to serve as chairman.
United’s share price has sunk nearly 12% over the past year, making it the fourth largest airline in the U.S. by market value, which currently stands at less than $20.5 billion. Shares of Delta Airlines (DAL), the country’s top airline by market cap, have gained nearly 8% in that time frame, while shares of Southwest Airlines (LUV) have lost less than 3%. American Airlines (AAL) stock, meanwhile, has lagged United slightly.
Bethune, who stepped down at Continental in 2004 years before its 2010 merger with United, said in an interview with CNBC that he would take the job “as a favor” to help his “friends” at the company increase its shareholder value and put it “in first place instead of last place.” But he said he had no complaints with its CEO Munoz: “I love the guy…This isn’t about Oscar. I’m not running against Oscar. ”
United’s board, however, slammed the shareholder activists for foregoing a private negotiation process and launching a public contest just as Munoz, who received a heart transplant in January, finally gets a chance to implement his own vision for the company. Munoz only became CEO in September, replacing Jeff Smisek as the company dealt with a regulatory investigation, and left just weeks later when he became ill.
“We are deeply disappointed that…PAR and Altimeter have unilaterally taken this hostile action with no concern that a proxy fight could distract the Company from executing on Oscar’s strategic plan,” United’s current chairman of the board Henry Meyer III said in a statement. Munoz himself also defended the company’s improvements in customer service as well as profitability in his own statement, saying, “We are confident there is substantial upside yet to come.”
Shareholders will have a chance to elect directors to United’s board at the company’s annual meeting, which has yet to be announced but typically takes place in late spring. Yesterday, United appointed three new directors, extending its board to 15 members, though the company said several other directors would step down at the meeting or before.
Bethune, who is 74, told CNBC that United’s board would likely have to raise its mandatory retirement age of 75 if he is elected, but that he’d only agreed to stay a maximum of two years anyway: “I do not want to be in this business any longer than that.”
Shares of United Continental Holdings were down just more than 1% in afternoon trading on Tuesday.