On Dec. 31, Larry Kellner — Houston-based Continental Airlines‘ president and chief operating officer — will take over as chief executive of Continental, replacing 63-year-old CEO Gordon Bethune, the former mechanic who pulled Continental from the brink of what would have been its third bankruptcy a decade ago.
This Wall Street Journal ($) article profiles Mr. Kellner and Continental, which is the nation’s fifth-largest airline with revenues of $8.87 billion over the past year. It is a good introduction to the new CEO of one of Houston’s largest employers. Check it out.

Following on this earlier post regarding Houston-based restaurant company Landry’s search for acquisition targets, the Chronicle reports that the company’s target is probably a Las Vegas casino and not the Stros.
Landry ‘s is a national restaurant company that owns and operates 300 restaurants, including Joe’s Crab Shack, Rainforest Cafe and Landry’s Seafood House. Landry’s CEO Tilman Fertitta, who founded the company and controls about a quarter of the company’s outstanding stock, is the cousin of the Fertitta family that runs Station Casinos Inc., so the gaming industry is already in the Fertitta family.
What’s particularly interesting is that Landry’s is dipping into the junk bond market to fund its venture into the gaming industry. Last week, Landry’s priced its inaugural $450 million speculative-grade issue in the high-yield market last Wednesday, and the resulting 7.50% rate for the offering of senior notes due in 2014 was about 50 basis points more than Landry’s would have had to offer if it had a track record in the high-yield market. Nevertheless, wWith that kind of yield, Landry’s bond offering received a warm reception in the high-yield junk bond market.
Landry’s will use $300 million of the unrestricted proceeds of the offering to pursue its new acquisition and the remaining $150 million for restaurant operations. If Landry’s makes a deal for a casino, it is likely that it would return to the junk bond market for additional financing.
In addition to its junk bond financing, Landry’s is also arranging a new $450 million credit facility, which consists of a $300 million revolving credit facility and a $150 million term loan.
Finance market analysts are cautious with regard to Landry’s financing moves. Standard & Poor’s Ratings Services assigned its ‘BB-‘ rating and a ‘2’ recovery rating to the $450 million credit facility, which means that the expectation is that there would be an 80-100% chance of recovering principal in the event that Landry defaults on the loan. S&P also issued a ‘B’ rating to Landry’s $400 million junk bond offering, and an overall ‘BB-‘ corporate credit rating with a negative outlook.
S&P assigned the junk bond offering a rating two levels below the corporate credit rating because the junk bonds are subordinate to the of substantial amount of priority debt in Landry’s capital structure. S&P provided the following cautionary comment on Landry’s:

The ratings reflect Landry ‘s participation in the highly competitive casual dining sector of the restaurant industry, its growth-through-acquisition strategy, the inherent difficulties in operating multiple concepts, a very aggressive financial policy, and the high leverage that results from the recapitalization. These risks are only partially offset by the company’s established presence in the causal seafood dining sector of the restaurant industry, good locations for its restaurants, and adequate financial flexibility.

Austin-based Dell, Inc. heaved a mighty yawn over the recent sale of IBM’s computer manufacturing business to the Chinese entity, Lenovo. This NY Times article does a good job of reviewing Dell’s remarkable story and current business plan, and includes such interesting tidbits as this:

Five years ago, it took two [Dell factory] workers 14 minutes to build a PC; it now takes a single worker roughly five minutes to do the same.

This NY Times article mostly misses the point about the key issues arising from the ongoing civil trial over the Walt Disney Co. board’s decision to pay Michael Ovitz a rather generous severance package for essentially doing nothing during his short stay at Disney. The Times piece focuses on personalities and the changing nature of the executives who are running big media and entertainment companies, and observes that the days of the autocratic executive treating the corporation as a personal fiefdom are probably over.
However, as noted in this earlier post, the blogosphere has done a much better job of analyzing the larger issues arising from the trial, not the least of which is that any malfeasance of the Disney board in approving the Ovitz severance package pales in comparison to its failure to require Disney CEO Micheal Eisner to adapt Disney’s corporate strategy to maximize value for Disney’s shareholders.
Both Professor Ribstein and Professor Bainbridge have been particularly insightful in discussing the issues arising in the Disney trial. For example, in noting that the case should ultimately turn on the duty of care that the Disney board used in making its decision to ratify the Ovitz severance package, Professor Ribstein observed in this recent post:

The Disney case is also interesting in illustrating the cross-currents of recent corporate history. It was first decided for the board in the pre-Enron era, then allowed to go forward in the post-Enron era, and now may be decided in the post-post-Enron era in which many are having second-thoughts about whether regulation and distrust of business people have gone too far.

And Professor Bainbridge notes in a recent post here:

The facts suggest that Eisner hired his buddy Ovitz, fell out with Ovitz and wanted him gone, cut very lucrative deals for his friend Ovitz both on the way in and on the way out, all the while railroading the deals past a complacent and compliant board. The story that emerges is one of cronyism and backroom deals in which preservation of face was put ahead of the corporation’s best interests. As such, the case does not necessarily presage the emergence of what Allen called “‘”objective’ evaluation of the decision” made by a board. Instead, this looks like another case in which “we have reason to disbelieve the protestations of good faith by directors who reach ‘irrational’ conclusions?” Michael P. Dooley, Fundamentals of Corporation Law 263 (1995). Once again, a seeming inquiry into the rationality of the decision arguably masks an underlying search for conflicted interests and self-dealing.

Finally, Professor Bainbridge provides the bottom line on the case in this post:

If the shareholders win, boards could be held liable “not just for big decisions like mergers but also compensation and other run-of-the-mill decisions.”

Thus, in a business climate in which many companies are having increasing difficulty finding qualified independent board members, the outcome of the Disney trial may provide yet another reason for competent businesspersons to avoid such engagements altogether.

The cost of Dallas-based law firm Jenkens & Gilchrest‘s legal problems resulting from its involvement in advising clients on tax shelters rose considerably yesterday. The the Dallas Morning News is reporting that the firm has increased its offer to a class of former clients to $85 million to settle a lawsuit over the firm’s involvement in the matter. Here are earlier posts on the firm’s involvement in the investigations and lawsuits that have arisen over the firm’s tax shelter advice.

Houston-based oil services giant Baker Hughes Inc. announced Thursday that it has received a federal grand jury subpoena and a request from the Securities and Exchange Commission to provide information regarding its participation in the United Nations’ oil-for-food program. Here is an earlier post regarding the investigation of other companies and individuals with Houston ties regarding their their involvement in the controversial program.
Among the other companies that have acknowledged receiving subpoenas from the SEC and the grand jury are conglomerate Tyco International Ltd., pharmaceuticals maker Wyeth and Houston-based El Paso Corp. The SEC’s probe is parallel to the other investigations, which include an independent U.N. inquiry being headed by former Federal Reserve Chairman Paul Volcker, the federal grand jury in Manhattan and several congressional committees.
The SEC’s investigative focus is the same as the other investigations — whether any of the companies improperly conducted business with Iraq’s oil-for-food program that Saddam Hussein operated in a typically corrupt manner. Specifically, the investigations are examining whether companies that issue stock or securities in the U.S. paid illegal kickbacks or bribes to politicians or businessmen to get Iraqi business or dealt with companies that may have committed such violations.

At least one Western bank participating in a consortium that was planning on financing up to $13 billion of Russian gas giant Gazprom‘s bid for the Yukos unit Yuganskneftegaz (“Yugansk”) has decided to postpone its participation in the consortium as a result of the temporary restraining order that Yukos obtained Thursday evening in its chapter 11 case filed on Tuesday evening in Houston. Here are the earlier posts on the Yukos bankruptcy case and the TRO.
Meanwhile, Russian authorities are preparing to proceed with the auction and to ignore the U.S. Bankruptcy Court order. Gazprom, which is predominantly owned by the Russian government, was expected to buy the Yugansk unit at the auction scheduled for Sunday. However, the TRO may chill enough members of the consortium of Western banks that are financing the bid that Gazprom could be effectively prevented from bidding unless it finds alternative financing. And $13 billion in acquisition financing is not easy to find on a weekend.
Nevertheless, Gazprom announced on Friday it is going bid in the auction anyway and has placed a $1.8 billion deposit with the Russian government as a condition to its participation. Three other Russian companies have also registered to participate in the auction.
My bet is that the auction proceeds and that the Russian government steps in to assist Russian financial institutions to provide funding for the successful bidder, if necessary. However, the Yukos bankruptcy case has already succeeded in the sense that it has reminded the Western capital markets that investment in Russian companies remains a high risk proposition. Unless or until the Russian government embraces the reforms necessary to provide Western capital markets with confidence that business transactions will be handled in accordance with the rule of law, Russia’s post-communist economic development will continue to be constrained by the lack of investment from the West.

At least one Western bank participating in a consortium that was planning on financing up to $13 billion of Russian gas giant Gazprom‘s bid for the Yukos unit Yuganskneftegaz (“Yugansk”) have decided to postpone their participation in the consortium as a result of the temporary restraining order that Yukos obtained Thursday evening in its chapter 11 case filed on Tuesday evening in Houston. Here are the earlier posts on the Yukos bankruptcy case and the TRO.
Meanwhile, Russian authorities are preparing to proceed with the auction and to ignore the U.S. Bankruptcy Court order. Gazprom, which is predominantly owned by the Russian government, was expected to buy the Yugansk unit at the auction scheduled for Sunday. However, the TRO may chill enough members of the consortium of Western banks that are financing the bid that Gazprom could be effectively prevented from bidding unless it finds alternative financing. And $13 billion in acquisition financing is not easy to find on a weekend.
Nevertheless, Gazprom announced on Friday it is going bid in the auction anyway and has placed a $1.8 billion deposit with the Russian government as a condition to its participation. Three other Russian companies have also registered to participate in the auction.
My bet is that the auction proceeds and that the Russian government steps in to assist Russian financial institutions to provide funding for the successful bidder, if necessary. However, the Yukos bankruptcy case has already succeeded in the sense that it has reminded the Western capital markets that investment in Russian companies remains a high risk proposition. Unless or until the Russian government embraces the reforms necessary to provide Western capital markets with confidence that business transactions will be handled in accordance with the rule of law, Russia’s post-communist economic development will continue to be constrained by the lack of investment from the West.

The Air Line Pilots Association agreed yesterday not to oppose United Airlines parent UAL Corp.’s effort to terminate the group’s generous defined-benefit pension plan in return for UAL’s agreement to issue to the union $550 million in convertible notes that the active pilots could sell in the capital markets to raise money to cover a portion of the pension shortfall.
The agreement is a key development in UAL’s effort to meet conditions of its exit financing so that it can emerge from its now seemingly unending chapter 11 case. Here are earlier posts on UAL’s bankruptcy case.
UAL is seeking to foist its four pension plans on to Pension Benefit Guaranty Corp. the quasi-governmental agency that insures pension plans. Such a move would save UAL $4 billion in pension contributions through 2008 and is a condition to UAL’s exit financing for emerging from its chapter 11 case. Although the PBGC opposes UAL’s plan to terminate the pension plans, if UAL can persuade the bankruptcy court that it cannot emerge from bankruptcy with that financial burden, then the PBGC would likely be forced to take over the plans.
Inasmuch as lucrative defined-benefit pensions are a highly important component of compensation in legacy airlines’ labor contracts, the fact that ALPA agreed to a deal over its pension with UAL indicates that the union understands that UAL really is on the brink of liquidation.
And that, folks, is the most important lesson that the parties-in-interest in the UAL case must understand if United Airlines is ever going to emerge from chapter 11.

Following on this earlier post regarding Dallas-based Southwest Airlines’ effort to expand its operations at Chicago’s Midway Airport, Southwest won the auction of bankrupt airline ATA’s Holding Corp.’s Midway assets yesterday.