| NEW YORK
NEW YORK Feb 14 After sitting out the
industry's last round of mega-mergers, airline giants AMR Corp
, parent of American Airlines, and US Airways Group
are finally tying the knot. Meet the matchmakers: the
financial and legal advisers for AMR's unsecured creditors'
committee in bankruptcy.
Jack Butler, the Skadden lawyer representing the creditor
panel in AMR's Chapter 11 bankruptcy case, joined forces with
investment bankers Gregg Polle and Bill Derrough from Moelis &
Co to make sure AMR management - which was not exactly keen on a
merger during the case - would give consolidation a fair shake.
The trio of advisers also served as the go-between whenever
the two carriers wouldn't budge at critical junctures of
negotiations, pitching compromise solutions that would work for
When AMR's three largest unions publicly announced their
support for a merger with US Airways on April 20, the smaller
rival also sent its first formal merger proposal to AMR and its
creditors, people familiar with the matter said.
That undisclosed initial offer, which proposed AMR creditors
and US Airways each own roughly half of the combined company,
fell short of the eventual merger terms announced on Thursday
and was largely ignored at the time, the people said. They did
not want to be named because they were not authorized to speak
to the press.
Under the $11 billion all-stock deal now approved by both
companies' boards, AMR creditors are taking 72 percent of
ownership in the merged company and US Airways shareholders the
rest.. AMR shareholders, once assumed out of the
money, will get 3.5 percent of the reorganized stock, which
could amount to between $350 million and $400 million, Butler
said at a court hearing on Thursday.
ALL ABOUT TRUST
Hostile takeover bids rarely succeed in bankruptcy. US
Airways chief Doug Parker knows that first-hand from US Airways'
failed hostile bid for Delta Air Lines in 2007.
But a consensual deal with AMR would require a level of
trust that was not readily apparent early in the case.
When the creditors' committee tapped its advisers late in
2011, they were taking on a set of well-known dealmakers. Butler
had led the restructurings of several major companies, including
auto parts maker Delphi Corp and US Airways in its first
restructuring. Derrough had represented bondholders in Delta's
bankruptcy, in which US Airways had made an unsuccessful
takeover bid. Polle, then head of mergers & acquisitions at
Citigroup, advised US Airways in the Delta case.
That familiarity would become crucial in building trust with
the parties as merger talks wound on.
The prospect of a merger with US Airways was apparent from
the get-go, and Skadden and Moelis were in communication with US
Airways from the early stages of the case, according to people
close to the matter. But AMR began to grow distrustful of the
committee when it felt the committee was taking too active a
role in pushing US Airways to engage in merger talks, the people
For their part, the committee's advisers felt AMR, despite
verbal commitments to explore a merger, would not take the
matter seriously unless pushed, the people said.
To break the stalemate, Derrough, Moelis' global co-head of
restructuring, suggested the committee and AMR negotiate a
written formal framework for evaluating mergers. AMR was
lukewarm at first, and arguments between the sides came to a
head in early May, when a high-ranking AMR officer and a
committee adviser conceded that each was losing trust in the
other, the people said.
But that spat, which could have been seen as a dangerously
low point in the case, ultimately proved key in the sides
hammering out a deal: without inherent trust, the parties
realized a formal framework was necessary to ensure a cohesive
exploration of AMR's restructuring options, the people said.
The framework, which came to be known as the "merger
protocol," allowed the committee to be in the room for every
discussion between US Airways and AMR. In return, the committee
promised not to engage with US Airways without AMR's permission.
The agreement was a crucial factor in convincing US Airways to
compromise with AMR, one of the people said.
"US Air might not have kept going if it believed it was only
negotiating with American," one of the people said. "There were
literally hundreds of phone calls over a two- or three-month
period, and the committee was there to chaperone, basically."
US Airways' familiarity with Derrough and Polle may have
also convinced them to bargain with AMR, one of the people said.
"The committee was trying to get them to trust the process,
and I'm not sure they would have agreed to if there wasn't
familiarity," one of the people said.
That's not to say the negotiations were a love fest. But,
while the sides continued to disagree on terms, the creditors'
committee, led by Butler, maintained a united front in court.
As savvy in the art of presentation as he was at making
deals, Butler was tight-lipped with media throughout AMR's
bankruptcy, his willingness to talk off-the-cuff a rarity. When
he made public statements, they were usually prepared, concise
and eloquent, and largely supportive of AMR's efforts to control
its own fate in Chapter 11. In a case not without hostility
behind the scenes, the committee never made a formal effort to
wrest control from AMR's hands by seeking to terminate the
company's exclusive right to file its own restructuring plan.
GETTING OFF THE GROUND
Once the merger evaluation process gathered momentum in the
late summer, the advisers to the creditors committee got even
more heavily involved.
US Airways and American initially were miles apart on how to
analyze potential merger benefits, requiring the creditors to
jump in to help find common ground.
The creditor advisers, for example, came up with an
independent analysis forecasting around $3.5 billion in total
net savings and benefits from a merger, taking into account
That figure came in between a lower projection by AMR and a
higher one by US Airways, and was eventually agreed by all
parties in November. The agreement cleared a key obstacle that
allowed talks to move into their final stages.
Perhaps the most notable effort by Skadden and Moelis had
nothing to do with dollars and cents. With a merger inevitable,
a lingering question was who would run the new firm - Parker, or
AMR Chief Executive Tom Horton. Both men wanted the job.
At a dinner in late January with AMR board member Judith
Rodin, lead independent director Armando M. Codina, and
bankruptcy lawyer Tom Roberts, the creditor advisers said they
supported US Airways' Doug Parker as chief executive of the
combined airline, according to people close to the matter. They
added, however, that they saw an important role for Horton as
chairman during the transitional period, and that making Horton
chairman for a limited time was instrumental to getting the deal
The committee said the same thing to Parker in a Jan. 31
call. It also played a key role in negotiating Horton's
compensation package, suggesting a cash-and-equity deal that
Horton quickly accepted, said a person close to the matter.
The following weekend, Parker reached out to Codina and
Horton, moving from his initial posturing to become both
chairman and CEO. The trio personally hammered out final
economic terms and the roles for each of them in the new
That was the moment when all stakeholders knew the merger,
at long last, was cleared for takeoff.