AMR Corp. (AAMRQ:US) Chief Executive Officer Tom Horton kept pitching himself to be CEO in a merger with US Airways Group Inc. (LCC:US) until the end of January, when his bankruptcy creditors firmly said no, people familiar with the matter said.
That set the stage for end-game negotiations to combine AMR’s American Airlines and US Airways. The focus became social issues -- Horton’s transition role, the length of his chairmanship and his compensation, said the people, who asked not to be identified because the talks were private.
Yesterday’s merger announcement marked a win for US Airways CEO Doug Parker, who with his lieutenants had spent months mounting a strategy code-named Tetris for the fifth-largest U.S. airline to take over No. 3 American in bankruptcy. With the deal, he will become head of the world’s biggest carrier.
“This isn’t about me or Tom, it’s about doing what’s best for the combined company,” Parker told reporters at a news conference when he was asked about his selection as CEO. “This is one decision we made as how best to do the combination.”
Parker’s role at the helm was part of a term sheet used in deliberations since November, when negotiations intensified, the people said. Horton, who steered AMR through 13 months in Chapter 11 and ultimately to the merger, took longer to accept that outcome, the people said.
AMR’s unsecured creditors committee ultimately decided that a clean break with the airline’s past was needed, said one person familiar with the recommendation about a new CEO. The focus was on a cultural change at a post-merger airline, not about personalities, this person said.
“Enough is enough,” Horton said yesterday in a Bloomberg Television interview with Adam Johnson about his time leading AMR. “By the time this deal is done, I will have been the president and CEO and chairman for a couple of years. It is the right tenure.” Horton will receive $19.9 million in cash and stock compensation as he steps aside.
He said his role as chairman would be to “help Doug make sure this thing gets off to a great start and that we integrate and build the world’s best airline.”
By the time the two executives spoke yesterday, Parker already had been at work for more than a year in pursuing AMR. He disclosed in January 2012 that US Airways had hired advisers to evaluate an AMR takeover.
US Airways’ designation of its AMR plan as “Tetris” referred to the video game in which blocks of different shapes have to be positioned to make a solid wall, a person familiar with the matter said.
The name referred to the view of Parker and his lieutenants that US Airways’ domestic route network could fill the hole they saw in American’s own system: an inability to move passengers up and down the East Coast to hubs that would connect them to flights across the U.S.
Horton was taking a different approach to any combinations. He became CEO on Nov. 29, 2011, when his predecessor, Gerard Arpey, stepped aside as AMR sought court protection en route to a fourth straight annual loss. Horton’s initial view was that he wanted to leave Chapter 11 as a stand-alone airline, then consider merger opportunities -- with AMR as a buyer.
Parker had been an airline CEO since 2001, and he had one successful merger under his belt, the 2005 tie-up he led when he was running America West Holdings Corp. to bring US Airways out of bankruptcy.
In less than six weeks of talks with three American unions, US Airways won tentative labor agreements, conditioned on a merger. That April victory marked a rebuff to Horton and AMR: It had been in some talks as early as 2006.
By September, US Airways was already betting that its bid would succeed. The airline assembled a team in Washington to lay out early plans for a merger announcement, a person familiar with the matter said. The efforts included a website and news releases to be issued once a deal was reached, the person said.
Prospects for a deal seemed to flag over the Thanksgiving holiday weekend, after AMR had proposed that its creditors get 80 percent of a merged airline, people familiar with the talks said. US Airways was offering 70 percent, and the creditors committee was closer to 75 percent, the people said.
By early December, negotiations in the 70 percent to 75 percent range gained momentum as the economics of a merger became compelling, the people said.
In the days following the creditors’ final answer on the CEO for the combined airline, Parker and Horton met for lunch in New York. They had worked together at American early in their careers, and are, they said yesterday, friends.
“Tom had to be thinking that he fixed the airline and should be able to finish what he started,” Jack Butler, the Skadden, Arps, Slate, Meagher & Flom LLP lawyer who advised AMR’s creditors committee, said yesterday. “But Tom did not make it about himself, he made it about getting the best deal for his stakeholders. This is not his first company and it won’t be his last.”
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