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Benefits August 12, 2003
Northwest Machinists Head for Court Over Stalled Stock Buyback
August 12, 2003 (PLANSPONSOR.com) - Northwest
Airlines machinists have joined their flight attendant
brethren by filing a lawsuit against the carrier alleging
that it backed away from a deal to repurchase preferred stock
issued to the machinists a decade ago.
Reported by Fred Schneyer
The machinists’ lawsuit, filed in the New York State Supreme Court by the International Association of Machinists and Aerospace Workers (IAMAW) and one of the union’s locals, asks for the court to force Northwest to make good on its promise to repurchase the stock for cash. The machinists also asked for at least $200 million in damages.
The stock was intended to compensate the approximately 17,000 machinists for wages and benefits they gave up from August 1993 to July 1996. The machinists’ suit claims 24,000 current and former IAMAW members “sacrifice(d)” about $340 million in lost compensation.
The stock given to the machinists was part of a total package worth about $900 million issued to the airline’s pilots and mechanics as well as the flight attendants. The pilots have already traded in their preferred shares for Northwest common stock, as the 1993 agreement allowed them to do.The stock grant included a put option that gave the machinists the right to sell back their shares to Northwest at $46.96 a share from June 2, 2003 to August 1, 2003.
According to the machinists’ suit, Northwest elected as part of the stock grant deal to repurchase the shares for cash, but that it reneged on August 1 and refused to follow through with the transaction.
The flight attendants filed their breach of contract suit in June (See Northwest, Flights Attendants Locked In Stock Buyback Dispute ).
Company Decision Time
The terms of the stock deal called for Northwest to decide by June 2 whether to buy back the preferred shares with cash, common stock or a combination of cash and common stock. Northwest issued a news release in June saying that it had “elected to use cash,” but added that this decision did not necessarily mean it would buy back the stock this year.
However, in an August 1 statement, the company said its board had determined that Northwest could not legally redeem the 4.8 million shares of its Series C Preferred Stock still outstan ding from the employee giveback deal because of Delaware law, but that the issue was far from closed.
“As a board, we recognize the valuable contributions our employees made to the company during the 1993-1996 wage reduction period and acknowledge the company’s obligation to buy back the Series C Preferred Stock. We wa nt to do so as soon as possible, “ board members said in the statement. ” Today’s decision does not mean that Northwest’s obligation to repurchase the Series C Preferred Stock has expired. Rather, the company’s obligation to the holders of the Series C Preferred Stock continues until Northwest has the ability to repurchase the Series C Preferred Stock. “
The board statement said the panel would regularly revisit the issue. Until it can do the stock repurchase, the company said each share will earn a 12% per year dividend on the $46.96 per share buyback price.