The opinion of the court was delivered by: CANNELLA
Plaintiff's motions for a temporary restraining order and a preliminary injunction are denied. Fed. R. Civ. P. 65(a), (b).
On May 15, 1985, plaintiff, Trans World Airlines, Inc. ["TWA"], filed a complaint seeking injunctive relief and damages, charging defendants with violating section 13(d) of the Williams Act amendments to the Securities and Exchange Act of 1934 [the "Act"], 15 U.S.C. § 78m(d) ["Section 13(d)"]. TWA is a Delaware corporation with its principal places of business in New York City and St. Louis, Missouri. TWA common stock and securities are traded on the New York and Pacific Stock Exchanges and are registered pursuant to the Act, 15 U.S.C. § 78 l. This action arises out of the purchases, beginning in September 1984 and continuing until Monday, may 20, of approximately 25% of TWA common stock be defendants. Defendant Carl C. Icahn, is a resident of New york, a registered broker-dealer and a renowned master of the corporate takeover game. Icahn controls the defendant companies and partnerships ["Icahn Group" or "Group"]. The sole claim argued before the Court in connection with the instant motions is that defendants have continually failed to disclose their true motivations in purchasing TWA stock and the actions they intend to take if they gain control of the company.
Icahn's attention first focused upon TWA in the summer of 1984 when he met with Sanford Rederer, an expert on the airlines business, to discuss a possible acquisition of Frontier Airlines. Although Icahn did not pursue Frontier Airlines, he and his associate, Alfred Kingsley, also discussed with Rederer and the airlines business in general and TWA in particular as a potential target for a takeover. Rederer subsequently prepared for Icahn numerous reports on TWA which were transmitted via Kingsley. The reports discussed the operating costs, cash flow, asset value and flight operations of TWA. They also recommended strategies for increasing cash flow and cash value by disposal of assets or elimination of certain operations, the so-called "feeder lines".
On October 28, 1984, Rederer indicated that he was "more convinced than ever that TWA would be worth much more than its current market value with the management prepared to move decisively to rationalize the route system and convert certain of the physical assets to cash."
He went on to explain that by "selling $300 to $500 million worth of assets the company would improve its operating results markedly because those assets as deployed are generating net losses."
In his earlier "Preliminary Assessment of the Value of TWA," Rederer indicated that he believed "that TWA could improve results measurably by eliminating its non-hub flying," referring to those flights not operating through the airline's St. Louis of New York City hubs.
In the same report, REderer recommended closing the Kansas City maintenance base, selling at least 25 and as many as 35 aircraft by scaling down flights. and selling airport facilities at O'Hare (Chicago), LaGuardia (New York), Philadelphia and Boston, "where TWA once had a major presence but never will again."
The subsequent reports further develop the theme that TWA would be a valuable takeover target only if the operations were scaled down and/or substantial assets of the company sold. Rederer also indicated that by following these steps the anticipated acquisition debt could be repaid within a year. Additionally, he discussed the potential of a leveraged buyout.
The reports recognized the TWA management was pursuing a different plan whereby the assets would be retained and operations expanded.
Rederer's most recent report is dated May 1985. Rederer was the only aviation analyst employed by Icahn during this period.
Beginning in September 1984, members of the Icahn Group began buying TWA common stock. The purchases continued through the winter and spring. By April 29, 1985, the Group had obtained 5% of TWA's outstanding stock, thereby triggering the requirement of Section 13(d) that the Group file a Schedule 13D disclosing material information about themselves and their intentions. Defendants timely filed their original 13D on May 9, 1985.
During the preregistration period, Icahn clearly intended to pursue the Rederer plan in at least a general way. Icahn testified that he liked the plan because it permitted him to acquire an airline, an industry which he considered to be generally undervalued, without liquidating the entire company after acquisition. He claims he has never favored liquidation plans and that he does not want to have the image of a liquidator. In Icahn's opinion, Rederer's plan called for sale of a limited and unproductive part of TWA's business, while permitting an increased cash flow following the reduction of assets and operations.
On May 3, following the April 29 triggering date, but prior to the Schedule 13D filing, Icahn met for the first time with TWA management. At the meeting, arranged by Drexel Burnham Lambert Inc., Icahn met with Carl E. Meyer, President and Chief executive officer of TWA. Several associates, legal and financial advisors from each side were also present. Icahn made several suggestions for changes at TWA including the Rederer plan as well as a leveraged buyout. The TWA representative strongly disputed the feasibility of the Rederer plan or the accrual of additional debt by the airline. Meyer indicated that TWA management had previously studied similar possibilities and rejected them.
On May 5, a second meeting took place, this time with Rederer present to defend his plan. In Icahn's words, the TWA representatives "really tore the plan apart and I think did a pretty good job of [it]."
Icahn claims that he then abandoned the Rederer plan. The next day, Icahn spoke by telephone with a second aviation consultant, David Campbell. Campbell focused his analysis of TWA on the labor situation. He recommended the the creation of a two-tier contract system similar to that used by American Airlines. The Campbell program would also require the layoff of 2000 employees, a 7% reduction of workforce, apparently through severance agreements. It would result in a 10% reduction in salaries, because of the introduction of the two-tier system. He did not recommend that sale of assets or the elimination of operations.
In his testimony before the Court, Icahn indicted that he did not think the Rederer plan was very different from the Campbell plan because both sought ways to increase the cash flow without fully liquidating the company. He suggested that Rederer also believed that if labor costs could be reduced the company should be expanded. Icahn claimed that he never really was fully committed to the Rederer plan because it required the elimination of operations, but he thought ...