However, there are a few obstacles that must be overcome. Importantly, the nomination of Bethune represents open rebellion by shareholders. This surprise move follows the announcement by United to overhaul its board on Monday, and the anticipated return of Oscar Munoz from a heart attack last year. The timing is also problematic; it coincides with multiple union negotiations and lingering merger issues. However, the shareholders leading the revolt have made it clear that hurting the current United Airlines management regime isn’t collateral damage, but is a goal unto itself.
Shareholders Altimeter Capital Management and PAR Capital Management explained why they were leading this insurrection in a letter to the UAL Board. The full text of that letter appears below:
As you know, Altimeter Capital Management and PAR Capital Management are long-term United Continental Holdings, Inc. ("United") stockholders that together own approximately 7.1% of United's outstanding common stock.
Following careful consideration, we have firmly concluded that meaningful change to United's existing Board of Directors is urgently required in order to reverse long-standing poor Board governance and the resulting many years of substantial and inexcusable Company underperformance relative to United's competitors. In our view – given United's valuable and industry-leading strategic asset base – this long-term underperformance directly results from an underqualified, ineffective, complacent, and entrenched Board. We believe that our conclusion is shared by many of United's long-suffering stockholders, customers, and 80,000+ dedicated employees.
Further strengthening our own conclusions, your seemingly desperate actions yesterday appear as a transparent and cynical attempt to maintain your official privileges and power, despite your long historical record of deficient oversight on behalf of stockholders. When exactly did you determine that the Board was so inadequate as to need four new directors, all at once, and without an annual meeting or a stockholder vote?
To set a new and better course for the Company, and to give United stockholders the opportunity to elect the Board they deserve, Altimeter has delivered to you a notice today indicating its intention to nominate six highly qualified professionals – led by former Continental Airlines CEO Gordon Bethune – to the United Board at the 2016 annual stockholder meeting. Altimeter and PAR believe these experienced professionals can bring meaningful experience, objective oversight, and powerful change to United. Altimeter's nominees are:
- Gordon Bethune, former CEO of Continental Airlines; board member of Honeywell, Prudential Financial, and Sprint;
- Brad Gerstner, Founder and CEO of Altimeter Capital; former board member of Orbitz Worldwide;
- Barney Harford, former CEO of Orbitz Worldwide; former board member of Orbitz Worldwide and eLong;
- Rodney O'Neal, former CEO of Delphi Automotive; former board member of Delphi Automotive, Sprint, and Goodyear;
- Tina Sharkey, CEO of SherpaFoundry; former board member of HomeAway; and
- Brenda Yester Baty, Head of Strategic Initiatives at Lennar Corp.; former SVP Revenue Management at Carnival Cruise Lines.
As you know, we have attempted to work collaboratively with the current Board to meaningfully improve governance, Board composition, and oversight. Regrettably, our efforts have led to our complete loss of confidence in the current Board, and to our firm determination that meaningful, stockholder-directed Board change is urgently required to serve the long-term best interests of United's stockholders, customers, and employees. We have no more confidence that you will act responsibly in the future (even with yesterday's announcement) than we have evidence that you have done so in the past.
We are generally patient investors. We certainly are neither short-term traders nor activists. We have not made this difficult decision lightly, but after thorough, serious, and objective analysis, we feel compelled to act.
Over time, we intend to share with United's stockholders our detailed analysis, which has led us to conclude, among other things, that:
- United has a Clear Record of Sustained and Substantial Underperformance: Despite premier, industry-leading strategic assets – such as significant scale advantages, strong brand recognition, hubs in key business markets, and membership in the largest global airline alliance – United has been the worst-performing U.S. airline stock over the last five years. The lagging stock price – under this Board's control and supervision – directly reflects substantial underperformance in terms of operational reliability, customer satisfaction, market share, profitability, and return on invested capital.
- United has an Underqualified, Ineffective, and Entrenched Board: While presiding over United's stunning long-term underperformance, we believe that the incumbent Board (and a majority of the newly-expanded 15-person Board): (1) lacks sufficient leadership, expertise, and experience to challenge management and hold management accountable, to direct an operational and financial turn-around, and to maximize stockholder value; (2) has entrenched itself by implementing various mechanisms to financially penalize stockholders for making meaningful Board changes; (3) has failed to adequately align management compensation with stockholder interests; and (4) is too stale to effectively represent stockholders. Based on yesterday's announcement, it seems the Board now agrees that for many years it operated with a suboptimal composition. Superficial change in panicked response to rigorous scrutiny is hardly noble or a basis for stockholders to have confidence in your judgment.
- United Urgently Needs a Course Correction: United's stockholders, customers, and employees deserve better Board governance, better Board leadership, and better Board performance. Our six nominees have the necessary skills, leadership abilities, and relevant experience to catalyze a United course change and to help the Company realize its immense potential.
Update - United Responds
United Airlines released a statement from nonexecutive Chairman Henry Meyer (the Third). The statement reads, in part,
“We are deeply disappointed that after United attempted to engage in a constructive, good-faith dialogue with PAR and Altimeter, repeatedly communicated our willingness to make meaningful changes in our board, publicly announced our intention to name four new independent directors with deep relevant experience and named three of them yesterday, 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.”
More on the United response can be found here.