Analysts: AMR Buyout Unlikely

By Trebor Banstetter, Fort Worth Star-Telegram, Texas

Feb. 16–FORT WORTH — Shares of AMR Corp., the parent company of American Airlines, rose Friday morning on a tangle of speculation that the airline could be the target of a takeover bid, despite skepticism from Wall Street analysts.

Bloomberg News reported late Thursday that Fort Worth-based AMR was the target of a proposed bid by a group including Goldman Sachs Group and British Airways, citing an upcoming article in BusinessWeek. The BusinessWeek article — an item in it’s “Inside Wall Street” column — said the price target was between $46 and $52 a share, or $9.8 billion to $11.1 billion, citing anonymous sources familiar with the deal.

Shares of AMR (ticker: AMR) were up 74 cents at $38.79 in mid-morning trading. The stock had climbed sharply in after-hours trading Thursday night after the report first surfaced.

Airline executives said they never comment on merger speculation.

But analysts said such a deal was unlikely to ever surface.

“We are skeptical of the AMR buyout reports,” said airline analyst Bob McAdoo of Prudential Equity Group in a report to clients Friday morning. “We doubt such a bid will surface, and if it does, we doubt it would succeed.”

McAdoo cited AMR’s heavy debt load, and its upcoming capital costs, such as replacing its MD-80 fleet, as major obstacles to a buyout. He also said that a merger between British Airways and American Airlines would face significant regulatory hurdles. Under federal law, foreign entities cannot own more than 25 percent of U.S.-based airlines, and cannot be involved in operations. Anti-trust considerations would also be a factor.

“We doubt an AMR-British Airways deal would win approval,” he said.

Analyst Ray Neidl of Calyon Securities agreed.

“We tend to doubt if anything will happen with this proposal, at least at this time, primarily because of potential regulatory hurdles,” he told clients in a note Friday morning. “The British Air involvement could add a further complication because of anti-trust and foreign ownership considerations.”

Neidl speculated that if talks have been held, they may be aimed at getting the attention of lawmakers and federal regulators. Both airlines have been pushing for an anti-trust exemption to allow them to partner on flights across the Atlantic.

Financial news service Reuters reported that substantial talks aren’t underway. A report Friday morning cited anonymous sources “familiar with the matter” that British Airways and Goldman Sachs have no plans to bid for AMR.

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